TaxTMI 
TaxTMI 
2025 (12) TMI 1864
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng, sub-assembling, designing, developing, fabricating, and distributing alternators and starter motors, air conditioning units, engine cooling modules and trading compressors. The manufacturing division had five segments viz., Starter Segment, Lighting Segment, Engine Cooling Segment, HVAC Segment, Wiper Segment. The Company also renders design and development services, shared support services and information technology services to its group companies. 3. The assessee filed its return of income for Assessment Year 2021-22, which was processed under Section 143(1) of the Income Tax Act, 1961 ('the Act') and was picked up for scrutiny assessment. During the scrutiny assessment proceedings, the Transfer Pricing Officer ('TPO') and the Assessing Officer ('AO') made certain adjustments / disallowances to the assessee's income. Against the draft assessment order of the AO, the assessee filed its objections before the Dispute Resolution Panel ('DRP') for AY 2021-22. The DRP upheld the transfer pricing adjustments. 4. Below is the summary of the adjustments made during the AY 2021-22: S.no. Description Amount in Rs. 1 Upward adjustment towards margin earned from manuf....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... BPO d. Adoption of TNMM method without performing economic adjustment 6.3 However, the DRP upheld the order of the TPO did not grant any relief. Aggrieved against the same, the Assessee is in appeal before us. However, since the Assessee has not pressed ground no. 2.1 relating to combining all manufacturing segments and ground no.2.2. Rejection of other method, our adjudication is limited to selection of comparable companies and granting of economic adjustments. 6.4 In view of the above, the ld.AR submitted that the comparable selected by the TPO pertains to different industry and the products considered are HVAC and cooling segment which constitutes only 13.4% of the revenue of the manufacturing segment (Refer to Page 301 and 302 of Paper book) whereas the majority of the manufacturing segment are into different products such starters, alternator and lighting. This clearly depicts the narrow approach adopted by the TPO while performing the search to identify comparable companies. Further the Ld. AR contended that the comparable companies selected by the TPO are rejected by the assessee on the grounds of significant exports, significant related party transactions an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Tribunal directed the AO/TPO to select only automobile segment of M/s. Dynamatic Technologies Ltd. as comparable or any other suitable company whose activities and characteristics are identical and similar to that of the assessee company. For ready reference, we extract the relevant paragraphs of the ITAT Orders: .............. 7. We have heard both the parties and carefully perused the materials available on record. Considering the arguments of the learned Authorized Representative, we find merit in the same because comparable companies should have identical or similar activities and characteristic of similar qualities, size and nature. The assessee company is only engaged in the manufacturing activity of automobile products such as water pump assembly and oil pump assembly meant for passenger cars. In these circumstances, only those companies which are operating in the automobile sector manufacturing similar kind of products are to be taken as comparables For the above reasons, we remit back the matter to the file of the learned Assessing Officer in order to refer the matter to the learned TPO and further direct the learned TPO to either select the automobile ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t year of assessment, the company was severely impacted by the following factors which resulted in low profitability (Refer to Page 313 to 314 of Paperbook) • Lockdown cost due to Covid-19 • Under the absorption of fixed costs • Underutilisation of capacity (Refer to page 343 of the paper book for capacity utilisation workings) • Significant depreciation cost • One time R&D cost • Nascent stage of operations of W28 segment (i.e., during the subject year W28 was only operating on a trial run basis and commercial production had not commenced) 7.2 The Ld. DRP and TPO failed to adjust the margin of the comparable companies on account of economic adjustment while benchmarking the international transactions. 7.3 The Ld.DR relied on the orders of lower authorities. 7.4 We have heard the rival parties and perused the material on record. In principle we agree that under TNMM appropriate economic adjustments ought to be made while determining the margins. We gainfully rely on the jurisdictional Tribunal decision in the case of Motonic India Automotive Pvt Ltd v. ACIT [2016] 73 taxmann.com 235 (Chennai - Tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he basis that the assessee does not incur any significant interest cost. The Ld.AR stated that, the above principle has been upheld by the Jurisdictional Tribunal in the case of Temenos India Private Limited (IT(TP)A32/CHNY/2024). 8.4 Based on the above, notwithstanding the other contentions, the ld.AR submitted that, since the assessee is a debt free company and does not pay any interest cost, the impugned adjustment proposed by the TPO is not warranted and should be deleted. 8.5 The Ld. DR in this regard, contended that the assessee's argument against imputing interest towards a debt free company is not tenable on the basis that even though there is no finance cost incurred, there is an imputed interest cost that is foregone due to outstanding receivables pending collection and that the said argument can only be made in the case of domestic transactions and not in the case of international transactions. 8.6 We have heard the rival contentions and gone through the orders of the authorities along with the paper and book and decided case laws relied on by the parties. The issue of TP adjustment on account of interest on overdue receivables from AE is covered by the decision....