TaxTMI 
TaxTMI 
2026 (7) TMI 1410
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....2,14,240/-. The return was processed u/s 143(1) of the Act on 24.12.2021 on a total income of Rs. 163,48,81,200/-. Thereafter, the case was selected for complete scrutiny under the Faceless-assessment Scheme, 2019 for examination of the various details as per para 2.1 of the draft assessment order. 3. Since the assessee had entered into certain international transactions, the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for determining the arm's length price of the International Transactions entered into by the assessee. Accordingly, the TPO issued a notice u/s 92CA(2) on 10.03.2022. Subsequently notice u/s 92D(3) and 92CA(2) r.w.s. 129 of the Act on 10.03.2022 and 22.06.2022 respectively along with a questionnaire were issued. The assessee in response to the same filed various details. 4. The TPO during the course of TP proceedings noted that the assessee had benchmarked the international transactions under different business segments (Export segment, Domestic segment, Distribution of capital equipment segment, Processing business solution segment and HUB segment) by using the Transactional Net Margin Method ('TNMM') as the most app....
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.... After considering the Ld. DRP's directions, the final set of comparables companies, with correct operating margins is as follows: Sr No Name of Companies Weighted Average (OP/OR)% 1 Fives Cail K C P Ltd. -0.17 2 Shrijee Process Engg. Works Ltd. 5.31 3 T & I Global Ltd. 10.76 4 Axtel Industries Ltd. 12.28 Average 7.05% Thus, the average PLI of the comparables is 7.05 % which is less than PLI of the assessee at 8.66% for the Processing Business Solution Segment. Hence, in view of the above, the adjustment in this particular segment is treated as NIL. 6. In view of the above, total adjustment for AY 2020-21 as per directions of DRP is as under: Sr. No. Particulars TP adjustment in Rs. 1. Manufacturing and Distribution in the Indian Market Segment 80,48,40,605/- 2. Manufacturing for Export Market Segment 3,22,91,417/- 3. Hub Services Segment (ITES) 3,37,54,002/- Total 87,08,86,024/- 7. In view of the above, total adjustment of Rs. 87,08,86,024/- is made to international transactions of assessee for AY 2020-21. 7. Aggrieved with suc....
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....ontemporaneous data in the transfer pricing study report maintained as per Section 92D of the Act read with Rule 10D of the Rules. 4.2. Erred in applying additional filters and modified filters applied in the transfer pricing documentation. 4.3. Erred in rejecting comparable companies selected by the Appellant in transfer pricing documentation viz i. Bhilwara Infotechnology Ltd. 4.4. Erred in selecting additional companies as part of comparable set viz.: i. Sundaram Business Services ii. CES Ltd iii. Datamatics Business Solutions Ltd. iv. Tech Mahindra Business Service Ltd v. Integra Software Services Pvt Ltd vi. Vitae International Accounting vii. Services Pvt. Ltd. viii. Domes E-Data Pvt. Lad ix. TTEC India Customer Solutions Pvt Lad x. MPS Ltd 4.5. Erred in cherry picking high margin companies and rejected low margin companies in a fresh comparable set, which is evident from the fact that in search strategy, accept reject matrix, margin computation was shared with the Appellant. 4.6. Erred in ignoring additional companies proposed as com....
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....ed net profit margin of 5.40% during the impugned assessment year and had selected TNMM method as the most appropriate method. Accordingly, the transactions were concluded to be at arm's length. However, the TPO in his TP order rejected 7 comparables selected by the assessee and added 8 additional comparables which have been upheld by the DRP. 12. Referring to page 460 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the 14 comparables selected by the assessee as comparables for this segment which are as under: Sr. No. Company Name NPM 2018 NPM 2019 NPM 2020 WCA Weighted Average NPM 1 Essee Metal Containers Pvt. Ltd. 1.79% 1.20% NA 1.49% 2 Wadpak Pvt. Ltd. NC 0.46% 4.45% 2.58% 3 Horizon Packs Pvt Ltd 3.06% 2.88% NA 2.96% 4 Uma Polymers Ltd. 4.29% 3.56% NA 3.90% 5|B & A Packaging India Ltd. 5.32% 3.01% NA 4.16% 6 Paswara Papers Ltd. 5.32% 3.41% NA 4.35% 7 Dhawan Box Sheet Containers Pvt Ltd NA 5.09% NA 5.09% 8 Uflex Ltd. 0.92% 4.33% 10.93% 5.50% 9 Pragati Graphics Pvt. Lt....
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....similar activity as that of the assessee and fits into the criteria of broad comparability. 16. Referring to page 564 of the paper book he drew the attention of the Bench to the details of principal business activities contributing 10% or more of total turnover of company and submitted that the name of main product / service as mentioned in the financial statements are as under: "Printing and allied activities i.e. Manufacturing of Holograms, Holographic Films and paper labels." 17. He submitted that the website screenshot reproduced by the DRP also clearly states that the company is engaged into multiple activities like anti-counterfeiting, labels and packaging. He submitted that based on the review of the company's website, Holostik is engaged in the business of manufacturing of holograms. 18. Referring to page 652 of the paper book, he submitted that the revenue from sale proceeds had been shown at Rs. 188084.85 lakhs. Referring to page 639 of the paper book he drew the attention of the Bench to the segmental details and submitted that there are no details of income from packaging. Therefore, it is not known about the profits from packaging business, if any and....
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....l information about company [Abstract] Disclosure of principal product or services [Abstract] Disclosure of principal product or services [LineItems] Product or service category (ITC 4 digit) code 2836 2815 4802 Description of product or service category SODA ASH SODA LYE WRITING PRINTING PAPER Turnover of product or service category 2,748.05 1,068.06 25,819.36 Highest turnover contributing product or service (ITC 8 digit) code 28362020 28151200 48025890 Description of product or service SODA ASH SODA LYE WRITING PRINTING PAPER Unit of measurement of highest contributing product or service MT MT MT Turnover of highest contributing product or service 2,748.05 1,068.06 25,819.36 Quantity of highest contributing product or service in UoM 16,097 3,681.01 47,158.53 [700600] Disclosures - Directors report Details of principal business activities contributing 10% or more of total turnover of company [Table] Unless otherwise specified, all monetary values are in INR .. (1) Principal ....
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....terial by the respective industries. He mentioned that the said company is engaged in manufacturing of polypropylene bags PP & FIBC bags etc. They are not certainly made for preservation of potable cool drinks industries based on the aseptic technology specially developed for the preservation of the perishable cool drinks by the consumers. In this regard, ld. Counsel submitted that the same cannot be a good comparable. We find merit in the case of the assessee and directed the TPO/Assessing Officer to exclude the same from the list of the comparables." 24. He submitted that the revenue reported in the financial statement for the relevant product i.e. kraft paper is amounting to INR 153,06,88,196 which fails the 10 times turnover filter applied by the TPO. He submitted that this company has not maintained separate segmental information for its operations relating to kraft paper and electrical energy and consequently, the margins earned by the company from manufacture of kraft paper and paperboards cannot be ascertained. He accordingly submitted that this company cannot be considered as comparable and has to be excluded from the set of final comparables. 25. So far as S J S Ent....
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....ing paint protection films, automotive films, architectural films and polyester films like premium performance films, non-reflective films, IR (infra-red) films, etc and cannot be comparable to the assessee which is engaged in the manufacturing of aseptic carton packaging. Referring to page 1464 of the paper book, he drew the attention of the Bench to the same and submitted that there is no segmental information available for the company. Referring to page 1453 of the paper book, he submitted that the company generates 66.34% revenue from export and 33.66% from domestic sales whereas the assessee's segment under consideration has 100% domestic business. Referring to the order of the TPO, he submitted that the TPO has applied 75% export earnings filter in Hub segment. Therefore, following the same principle and considering that the comparable is primarily into exports, therefore, the same should not be considered as comparable since the assessee is primarily into domestic market. He accordingly submitted that Garware Hi-Tech Films Ltd. should be excluded from the final set of comparables. 27. So far as S M L Films Ltd is concerned, he submitted that SML Films Ltd is engaged in th....
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....accordingly submitted that this company is engaged in the manufacturing of kraft paper from waste paper. Referring to page 212 of the Legal paper book he drew the attention of the Bench to the operating segment where it has been mentioned as under: The dominant source of income of the company is from the sale of kraft paper of various quality which do not materially differ in respect of risk perception and the return realized/to be realized. Even the geographical/ regulatory environment in which the company operates does not materially differ considering the political and economic environment, the type of customers, assets employed and the risk and return associated in respect of each of the geographical area. So, the disclosure requirements pursuant to Ind AS-108- "Operating Segments" are not applicable. 30. Referring to page 238 of the legal paper book, he drew the attention of the Bench to clause (k) i.e. event after the reporting date and submitted that a fire broke out in Astron premises affecting financial numbers of the company. He drew the attention of the Bench to the same which read as under: "k) Event After the Reporting Date: Subsequent to the fi....
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....rations has been shown at 481,01,39,714/- for the financial year 2019-20 and Rs. 493,99,03,805/- for the financial year 2018-19. Referring to page 2487 of the paper book he submitted that no segmental details are available. Referring to website product reference, he submitted that the manufacturing of kraft paper and writing paper are not comparable to the assessee's business activity of manufacturing of aseptic carton packages. Further, the paper used for production by the comparable company is manufactured by using waste paper and agricultural residue whereas in the assessee's case recycled paper cannot be used in the manufacturing process. He accordingly submitted that Ruchira Papers Ltd be excluded from the set of final comparable companies. 33. So far as incorrect rejection of the assessee's comparable i.e. Huhtamaki PPL Limited is concerned, he submitted that the said company was rejected only on account of different financial filter. He submitted that Huhtamaki PPL Limited is passing the different financial filter and turnover filter and therefore should be considered in the final set of comparables by the TPO. 34. Referring to the decision of the Hon'ble Punjab & Hary....
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....o Hub Services segment amounting to Rs. 3,37,54,002/-. 38. The Ld. Counsel for the assessee submitted that the TPO rejected Bhilwara Infotechnology Limited, a company selected by the assessee, on the basis of forex / revenue filter of 75%. He submitted that there is no dispute about the functional comparability of the above company. He submitted that the assessee by way of rectification application dated 19.07.2024 against the direction of the DRP submitted that Bhilwara is engaged in two segments - medical transcription and IT software. Out of both the segments, medical transcription segment is comparable to the ITeS business of the assessee and satisfies the export filter applied by the TPO. 39. Referring to the provisions of Rule 10TA(e) of the Income Tax Rules, 1962, he submitted that as per the said rule, the Information Technology Enabled Services (ITeS) means the following business process outsourcing services provided mainly with the assistance or use of information technology namely inter-alia (vi) creation and maintenance of medical transcription excluding medical advice. Considering the same, the medical transcription segment of the comparable company is to be take....
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....or claiming that this company is, in fact, comparable and be considered for evaluation. 45. Grounds of appeal No.5 to 5.2 relate to the transfer pricing adjustment with respect to manufacturing and distribution in the export packmat segment amounting to Rs. 3,22,91,417/-. 46. The Ld. Counsel for the assessee submitted that vide show cause notice dated 19.07.2023 the TPO for the purpose of determining the arm's length price of the international transactions pertaining to Export Packmat Segment proposed to take average PLI margin of the comparables at 5.79% as against the PLI of the assessee at 4.88% and proposed an adjustment of Rs. 2,26,03,992/-. He submitted that the assessee had benchmarked the same with 14 comparables out of which the TPO accepted 9 comparables, rejected 5 comparables and added 6 new comparables into the final set of comparables ranging from 5.02% to 8.02% with a median of 5.79% in the first show cause notice. He submitted that in the second show cause notice dated 22.07.2023, the TPO, for re-benchmarking of export segment, relying on BAPA signed for past years of the assessee enhanced the adjustment to Rs. 3,22,91,417/- by taking the PLI of margin agreed ....
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....dian market segment is concerned, we find the assessee in its TP study had arrived at set of 14 comparables with profit margin varying 4.16% to 6.72% respectively for the domestic segment. Since the assessee had earned net profit margin of 5.40% during the financial year 2020-21 and had selected TNMM method as the most appropriate method, the transactions were concluded to be at arm's length. We find the TPO in the TP order rejected 7 comparables selected by the assessee and added 8 additional comparables. So far as the 7 comparables selected by the assessee and rejected by the TPO are concerned, we find Holistik India Limited is not at all a comparable company. We find from the details furnished in the paper book that the said company is engaged in the business of printing and allied activities i.e. manufacturing of holograms, holographic films and paper labels, marketing expenditure. Further, it has incurred marketing expenses and also engaged in R & D activities. We find the DRP in its directions simply held that the company is engaged into similar activity as that of the assessee and fits into the criteria of broad comparability. We find from the details of principal business a....
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....ss of generation of power. We find the DRP rejected the submissions made by the assessee and accepted the inclusion of the company on the basis of broad comparability. From the audited financial statements of the company, we find no segmental details are available. We find the Tribunal in assessee's own case for assessment year 2005-06 vide ITA Nos.1610/PUN/2013, 1647/PUN/2013 and 1609/PUN/2013 order dated 24.05.2019 at para 45 of the order has observed as under: "45. Karur KCP Packaging Ltd. : The TPO considered this is a good comparable in his TP study. The case of the assessee against such include that the said company is engaged in the manufacturing of craft paper from wood pulp and waste paper. Further, this company also engaged in the manufacturing of polypropylene bags, which are required in the cement industries. The TPO considered this is a good comparable merely on the ground that the same is engaged in the packaging industries and ignored the fact that the packaging by the said company is for storing of cement. In this regard, ld. Counsel brought our attention to page 464 of the Paper Book and demonstrated the difference in the packaging material and uses of suc....
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.... S J S Enterprises Ltd is not comparable to that of the assessee company and therefore we direct the TPO / AO / DRP to exclude the same from the final set of comparables. 56. So far as Garware Hi-Tech Films Ltd considered by the TPO as comparable is concerned, we find Garware Hi-Tech Films Ltd is engaged in the business of manufacturing and exporting of specialty polyester films used for food grade packaging and food packaging bottle shrink label application. It is also engaged in R & D activities. We find the DRP has directed for inclusion of the company on the basis of broader comparability. We find from the annual report of the said company for financial year 2019-20 that Garware Hi-Tech Films Ltd is engaged in the manufacturing and exporting of specialty polyester and all types of films. It is also engaged in manufacturing paint protection films, automotive films, architectural films and polyester films like premium performance films, non-reflective films, IR (infra-red) films, etc and cannot be comparable to the assessee which is engaged in the manufacturing of aseptic carton packaging. We further find that there is no segmental information available for the company and the....
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....any reads as under: CORPORATE INFORMATION: Astron Paper & Board Mill Limited is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The shares of the company are listed in two recognized stock exchanges in India i.e. the Bombay Stock Exchange Limited ('BSE') and the National Stock Exchange of India Limited ('NSE). The company is engaged in the manufacturing of Kraft Paper from waste paper. 59. We find clause 'J' of significant accounting policy i.e. operating segment reads as under: The dominant source of income of the company is from the sale of kraft paper of various quality which do not materially differ in respect of risk perception and the return realized/to be realized. Even the geographical/ regulatory environment in which the company operates does not materially differ considering the political and economic environment, the type of customers, assets employed and the risk and return associated in respect of each of the geographical area. So, the disclosure requirements pursuant to Ind AS-108-"Operating Segments" are not applicable. 60. We further find a fire broke out in Astron p....
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....rvice is concerned, it is mentioned as "kraft paper and writing and printing paper". We find the revenue from operations has been shown at 481,01,39,714/- for financial year 2019-20 and Rs. 493,99,03,805/- for financial year 2018-19 and no segmental details are available. We find from the website product reference that the company is engaged in the manufacturing of kraft paper and writing paper which are not comparable to the assessee's business activity of manufacturing of aseptic carton packages. Further, the paper used for production by the comparable company is manufactured by using waste paper and agricultural residue whereas in the assessee's case recycled paper cannot be used in the manufacturing process. In view of above discussion, we hold that Ruchira Papers Ltd is not comparable to that of the assessee and we direct the TPO / AO / DRP to exclude the same from the final set of comparables. 63. So far as the rejection of assessee's comparable i.e. Huhtamaki PPL Ltd is concerned, we find the above company was rejected only on account of different financial year filter. From the submissions made by the assessee we find this company is a listed company and quarterly financ....
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....a for the financial year 01.04.2008 to 31.03.2009. 30. This view is not contrary to Rule 10(B)(4) which reads as under :- "10B(4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into". 31. The Rule does not exclude from consideration the data of an entity merely because its financial year is different from the financial year of the assessee. What the Rule requires is that the data to be used in analyzing the financial results of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. Thus so long as the data relating to the financial year is available, it matters not, if the financial year followed is different. In the case before us the data relating to the relevant financial year of R.Systems International Limited is available. 32. We are, therefore, entirely in agreement with the decision of the Tribunal that if the data relating to the financial year in whic....
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....extrapolating the figures. 66. So far as the working capital adjustment is concerned, we find the TPO himself in the TP order has granted the working capital adjustment for Hub Service segment. Further, the Tribunal in assessee's own case for assessment year 2005-06 has allowed the working capital adjustment by observing as under: "D. Working Capital Adjustments 49. On the issue of grant of adjustment on account working capital, we find that it is a settled legal issue by the decision of the Pune Bench of the Tribunal in the case of ITO vs. Nevis Network (India) (P.) Ltd. vide ITA No.338/PUN/2012 dated 24.12.2014; wherein the Tribunal held that the 'working capital adjustments' are required to be granted as raised by the assessee vide additional grounds placed before us. 50. Considering the cover nature of this issue, we are of the opinion the additional grounds should not only be admitted but also the Assessing Officer should be directed to grant working capital adjustments. For this purposes, the above tables inserted in the preceding paragraphs of this order should be remanded to the file of the TPO/Assessing Officer for incorporating the above direction ....
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.... (emphasis supplied) 70. In view of the above, we are of the considered opinion that medical transcription segment of the comparable company should be taken into consideration and therefore Bhilwara Infotechnology Limited should be allowed as a comparable in Hub Service segment. 71. So far as Ideavate Solutions Pvt Ltd is concerned, we find the TPO rejected this company on the basis of RPT filter. However, from the various details furnished by the assessee, we find RPT is less than 21.64%. We, therefore restore this issue to the file of the TPO with a direction to verify the details and find out the RPT / sales percentage and if it is less than 25% of the filter applied by the TPO, then to retain the same as comparable. 72. So far as the selection of the 2 additional companies i.e. Thomson Reuters International Services Pvt Ltd and Global Healthcare Billing Partners Pvt. Ltd. as part of comparable set is concerned, we find although the Ld. Counsel for the assessee filed various details to substantiate his case that both the companies are engaged into the provision of similar services like that of the assessee and should be considered as comparable in the final set of compa....
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....essee passes FAR test, then to include the same as comparable in the final set of comparables. Grounds of appeal No.4 to 4.8 are accordingly allowed in the above terms. 75. So far as the addition in respect of manufacturing and distribution in the Export Market Segment is concerned, we find the TPO issued show cause notice for determination of ALP of international transaction pertaining to Export Packmat Segment wherein he proposed to make an upward adjustment of Rs. 2,26,03,992/-. We find the assessee in the instant case benchmarked the same with 14 comparables out of which the TPO accepted 9 comparables, rejected 5 comparables and added 6 new comparables into the final set of comparables ranging from 5.02% to 8.02% with a median of 5.79% as against the PLI of 4.88% shown by the assessee and proposed upward adjustment of Rs. 2,26,03,992/- in the first show cause notice dated 19.07.2023. However, in the second show cause notice dated 22.07.2023 he wanted to re-benchmark of export segment relying on BAPA signed for past years of the assessee and enhanced the adjustment to Rs. 3,22,91,417/- by taking the PLI of margin agreed in the BAPA of 6.18%. It is the submission of the Ld. Co....
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....r appeal afresh as per law. This Revenue's appeal ITA No. 162/Pun/2022 is allowed for statistical purposes." 77. We find the Hon'ble Delhi High Court in the case of Aon Consulting Private Limited vs. PCIT and Ors (supra) has held as under: "32. It is clear from the above that MAP is a resolution process by competent authorities of contracting states by negotiations and consensus. 33. In a case of a transfer pricing adjustment, an assessee may not be aggrieved by an upward revision if the overall taxation between the assessee and its AE is acceptable to it. A multi-national group may accept a situation where an upward TP adjustment by a taxing authority of one country has a corresponding mitigating effect on the taxable revenue of its constituent entity in the other contracting state. It may do so even though it considers the same to be incorrect as the adverse effect in one jurisdiction may even out in another. However, this would not justify a TP adjustment in respect of transactions which are disputed and not subjected to MAP. 34. It is important to note that MAP procedure is based on an agreement between the competent authorities of the contracting ....