TaxTMI 
TaxTMI 
2026 (6) TMI 812
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....h Price (ALP) for international transaction. The assessee is having following international transactions: S. No. Nature of the transactions Amount 1 Purchase of raw material and consumables 14,16,37,996 2 Sale of components 86,87,435 3 Sale of Finished Goods 59,06,78,086 4 Payment for warranty charges 6,45,684 5 Payment for rework charges 33,27,955 6 Import of EPS 3,91,80,418 7 Royalty payments under Technical Collaboration agreement 8,84,64,533 8 Payment of Brand Fees 1,01,24,383 9 Payment of technical support services under Technical collaboration agreement 38,07,035 10 Payment for interpretation charges 71,497 11 Issue of Equity Share charges 1,26,80,00,000 12 Provision of support services 1,96,43,087 13 Expenses reimbursed to AEs 5,12,61,414 14 Expenses reimbursed by AEs 1,02,10,356 3. The TPO after considering the submissions has excluded certain comparables and includes new comparable and made the following adjustments in ALP of three type of transactions: Particulars Adjustment Amount (in INR) Manufacturing segment 8,72,30,293 ....
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....and unreasonable criteria. 3. That on the facts and circumstances of the case and in law, net margins of certain comparables appear to have been wrongly computed by the Ld. TPO/AO/DRP which the Appellant has not been able to verify from the Annual Reports in absence of backup computation. GROUNDS PERTAINING TO BUSINESS SUPPORT SERVICES 4. Without prejudice to any of the grounds, the Ld. TPO/AO/DRP has erred, in law and on facts, by completely misunderstanding the nature of business support services provided by the Appellant and consequently disregarding the search process adopted by the Appellant and rejecting companies based on inappropriate and unreasonable criteria. 5. The Ld. TPO/AO/DRP has erred, in law and on facts and circumstances of the case, by identifying fresh comparable companies without undertaking a detailed search process, based on inappropriate and unreasonable criteria. GROUNDS PERTAINING TO PENALTY PROCEEDINGS 6. That on facts and in laws, the Ld. AO erred in holding that the Appellant has furnished inaccurate particulars of income in respect of each item of disallowance/ additions and in initiating penalty pr....
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....re auto components" 14. As per the Ld. AR, the suspension and breaking segment is one of the core-auto component and, therefore, the company which is manufacturing core components cannot be compared with company manufacturing non-core auto components due to the inherent product dissimilarity. For this reliance is placed on the judgment of Co-ordinate Bench of ITAT, Delhi in the case of Daido India Private Limited vs. DCIT (ITA No.5761/Del/2018). The Ld. AR thus, submitted that the comparables selected by the TPO for bench marking the transactions for determination of Arm's Length Price (ALP) includes certain comparable which are engaged in manufacturing of non-core auto components and therefore, the same should be excluded from the final set of comparables. Thereafter, the Ld. AR made submission for the exclusion of the certain comparable companies considered by the TPO. 15. In this regard ld. AR submits that as per the TPO, under the manufacturing segment, assessee has selected TNMM method as most appropriate method and the assessee have taken PLI at 3.56% of costs whereas as per the TP document median of PLI of the comparables was worked out at 6.45%. Thereafter the TPO has....
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....onal of the methodology having been chosen and accepted. In this regard, Ld. CIT-DR placed reliance on the judgment of Co-ordinate Bench of Tribunal in the case of Copal Research India (P.) Ltd. vs. DCIT, [2016] 73 taxmann.com. 157 (Delhi-Trib.) wherein it is held that "......broad comparability of fairly large number of comparable companies can further ensure that minor variations if any are offset by taking a fairly large sample. Any major impact of their FAR on their net profitability if still so warranted on facts can be addressed by carrying out appropriate adjustments the need for which has to be demonstrated on the basis of record so as to bring their FAR in alignment with that of the tested party i.e. the assessee...". 18. With respect to the exclusion of two comparables namely, Eicher Motors Limited and Special Engineering Services Limited, ld. CIT DR submits that both these companies are engaged in manufacturing of auto mobiles and auto mobiles part and, therefore, they are broadly functionally comparables. For the remaining comparables, Ld. CIT DR vehemently supported the order so the AO /TPO and requested to include the same in the final set of comparables. In the la....
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....ns, buzzers. The horn, per se cannot be said to be a core auto component and therefore, if we go by the distinction drawn by the safe harbor rules as point of reference or understanding the what is core and non-core components, then the products of the assessee falls in the category of non-core auto components. The distinction between core and non-core auto components assumes great significance in analysing the FAR analysis, because specific characteristics of the auto component manufactured and sold commands different terms of price negotiations, margins, and kind of assets deployed in terms of technology, R & D, skilled man power, etc. A core component definitely commands higher price and bigger bargaining power in the automobile industries as compared to manufacturers who are producing simply ancillary parts and non-core products like wind shields, horns, car accessories, etc. If we go by the components manufactured by some of the comparable companies as discussed by the DRP, like, Imperial Industries Ltd. it is seen that it is mostly engaged in manufacturing of radiator and heater hoses, fuel and vacuum hoses, fuel injection tubes, CRDi tubes, hydraulic tubes, EGR and Belfows. ....
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....h the parties and perused the materials available on record. First issue is whether the assessee can rely upon the definition provided under Rule 10TA(b) of the Rules for 'Core Auto components' or not since it has not opted for Safe Harbour Rules. In our opinion though the assessee has not opted for Safe Harbour Rules, however, a reference could be taken with respect to the definition of core auto component and non-core auto components. This view of supported by the judgement of the coordinate Delhi bench of Tribunal in the case of the DCIT vs. Mindia Acoustic Ltd. (ITA No.1759/Del/2015) wherein after considering the arguments of the assessee and the Revenue the Co-ordinate Bench in para 16 and 20 has made the following observations: "16. As stated above the assessee is mainly into manufacturing of various types of horns, i.e., trumpet horns, air horns, disc horns, buzzers. The horn, per se cannot be said to be a core auto component and therefore, if we go by the distinction drawn by the safe harbor rules as point of reference or understanding the what is core and non-core components, then the products of the assessee falls in the category of non-core auto components. The ....
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.... Bench has held that though the Safe Harbor Rules are not opted even, in such circumstances, the same can be taken as a guiding factor for determination of the ALP and, accordingly, we hold that since the assessee is manufacturing core-auto components and, therefore, the comparables should be taken which are operated in the same field. 22. Now coming to the issue of exclusion of certain comparables out of final set of comparables as argued by the assessee, each of the comparable is discussed as under: 23 (i) Vega is one of the leading helmet manufacturers in India and is engaged in manufacturing of safety helmets and accessories. The Ld. AR drew our attention to the Annual report of the company wherein the description of the companies products are stated by the management. After going through the same and further considering the financials of the company it is observed that its main revenue is from the manufacturing helmets. Thus, considering these facts, we of the considered view that this company since engaged in manufacturing of non-core auto component and, therefore, it is not a valid comparable and thus, we direct the AO / TPO to exclude this comparables from the final s....