M/s. Manaksia Ltd., , Kolkata V. ACIT, Circle - 4(2), Kolkata

CO 13/KOL/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4660 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-04-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 15-08-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TUSHAL DHAWAL SINGH
• Assessee Lawyers: LATA GOYAL
• Keywords: Transfer pricing; International transaction; Competent authority
• Section: 92C; 10B; 250; 13

Judgement Text

आयकर अपीलȣय अͬधकरण, “कोलकाता“ Ûयायपीठ कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “KOLKATA” BENCH, KOLKATA ] ] BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 1611/Kol/2019 Assessment Year : 2014-15 ACIT, Circle-4(2), Kolkata Vs M/s. Manaksia Limited 8/1, Lalbazar Street Kolkata – 700 001 PAN : AAACH6882J अपीलाथȸ/ (Appellant) Ĥ× यथȸ/ (Respondent) C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 8/1, Lalbazar Street Kolkata – 700 001 PAN : AAACH6882J Vs ACIT, Circle-4(2), Kolkata अपीलाथȸ/ (Appellant) Ĥ× यथȸ/ (Respondent) स ु नवाई कȧ तारȣख/Date of Hearing : 14/03/2022 घोषणा कȧ तारȣख /Date of Pronouncement : 22/04/2022 आदेश/O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER : This appeal by the department is arising out of the order of the ld. Commissioner of Income Tax (Appeals)-22, Kolkata in Appeal No. 109/CIT(A)-22/14-15/17-18/Kol, vide order dt.28/02/2019 passed u/s 250 of the Income Tax Act, 1961 (hereinafter the ‘Act’) against the assessment order dt. 27/12/2017 passed u/s 143(3)/144C of the Act passed by the Assessee by : Shri S.K. Tulsiyan, Advocae & Ms. Lata Goyal, ACA Revenue by : Shri Tushal Dhawal Singh, CIT, D/R ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 2 DCIT, Circle-4(2), Kolkata. The assessee has also filed a cross-objection on the appeal filed by the Department. 2. At the outset, we find that there is a delay of 25 days in filing of the appeal by the Department and a delay of 681 days in filing of the cross objection by the assessee. Both the parties have filed applications explaining the cause of delay and requesting for condonation. The assessee has also put up on record an affidavit explaining the reasons for delay. 2.1. We have duly considered rival contentions and gone through the record carefully. Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross-objections after expiry of relevant period, if it is satisfied that there was a sufficient cause for not presenting it within that period. Similarly, it has been used in section 5 of Indian Limitation Act, 1963. Whenever interpretation and construction of this expression has fallen for consideration before Hon'ble High Court as well as before the Hon'ble Supreme Court, then, Hon'ble Court were unanimous in their conclusion that this expression is to be used liberally. We may make reference to the following observations of the Hon'ble Supreme court from the decision in the case of Collector Land Acquisition Vs. Mst. Katiji & Others, 1987 AIR 1353: "1. Ordinarily a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner. ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 3 4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. 6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so." 2.2. Similarly, we would like to make reference to authoritative pronouncement of Hon'ble Supreme Court in the case of N.Balakrishnan Vs. M. Krishnamurthy (supra). It reads as under: "Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finis litium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 4 expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss." 2.3. We do not deem it necessary to re-cite or recapitulate the proposition laid down in other decisions. It is suffice to say that the Hon'ble Courts are unanimous in their approach to propound that whenever the reasons assigned by an applicant for explaining the delay, then such reasons are to be construed with a justice oriented approach. 2.4. In light of the above, if we examine the facts then it would reveal that there is a brief delay of 25 days in filing of the appeal by the Department. In its application it has been contended by the revenue that on account of huge pendency of time barring assessment, action plan targets and penalty proceedings, the concerned officer could not get time to take approval of competent authority for filing the appeal. Considering the brief delay and the explanation of the revenue, we condone the same and admit the appeal. 2.5. As far as the delay in filing of the cross-objection is concerned, it is pertinent to note that sub-Section (4) of Section 253 of the Act, authorizes the respondent to file cross-objection against any part of the impugned order by which it is aggrieved. The procedure contemplated in the Income Tax Rules, 1962 and followed by the Registry is that on receipt of an appeal from the appellant it issues notice to the respondent. Though it is not a notice fixing the actual hearing of the appeal. It is for the purpose of completion of formalities so that, it can be posted before the Bench when it’s turn comes. Therefore, the initial date in a way is a farzi (tentative) date. In the present case, the assessee has filed the cross-objection well in advance of the actual listing of the appeal on the board. The second reason for condoning the delay is that, the impugned order on which the cross-objection has been filed by the respondent/assessee is open for debate in the appeal of the ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 5 appellant/revenue. Therefore, for the just decision of the controversy, it is incumbent upon us to condone the delay. The respondent/assessee has explained the reason for such delay in the affidavit placed on the record. We have gone through the same. The affidavit in itself contains an exhaustive explanation. 2.6. In view of the above, we condone the delay in filing of the appeal as well as the cross-objection and proceed to adjudicate them on merits. 3. The department has come up before the tribunal in appeal by challenging the following grounds:- “1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in determining the arm's length rate of interest in accordance with 92C of the I.T.Act, 1961 read with Rule 10B & Rule 10C of the I.T.Rules, 1962 (the Rules). 2. Whether on the facts and in the circumstances of the he Ld. CIT(A) has erred in undertaking adequate 'comparability' analysis and 'reliable and accurate adjustments’ to account for differences between international loan transaction and comparable uncontrolled transaction as envisaged under transfer pricing provisions. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred by rejecting 3 comparables out of 10 comparables selected by the TPO under TNMM on the basis of FAR analysis. 4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that, comparables were taken by the TPO on the basis of functionally similar basis under the TNMM method, unlike in the case of CUP method wherein product and functional comparability are to be strictly matched. 5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred by accepting the fresh annual reports of the comparables, which were rejected by the TPO on the ground of non-availability of annual reports, without giving an opportunity to the A0./TPO. 6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the TP adjustment on guarantee fee whereas it is apparent from record that the guarantee was lying at the beginning of the financial year under consideration. ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 6 7. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the findings of the TPO on corporate guarantee which was based on the information available on record. 8. That the appellant craves for leave to add, delete and modify any grounds of appeal before or at the time of hearing.” The assessee has challenged the following grounds in its cross objection:- “1. That, on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding the PLI-OP/TC used by the TPO for benchmarking the sales as correct in place of OP/Sales as the PLI adopted by the assessee for determining ALP without pointing out any error in the Transfer Pricing Report of the appellant. 2. That, on the facts and circumstances of the case, the Ld. C.I.T.(A) erred in considering the OP/OR of comparables, DCM Engineering Ltd and Dee Dee Steel Castings Ltd at 10.83% and 8.49% which was computed by considering excise duty as a part of OR. 3. That, without prejudice to the above, the Ld. C.1.T.(A) erred in directing the TPO to rework the PLI of the tested party and recompute the mean PLI of the comparables with reference to the accepted set of comparables which was not in accordance with the power provided u/s.251(1)(a) of the Act.” 4. The sum and substance of the appeal and the cross objection relates to the adjustments made by the Transfer Pricing Officer (TPO) under the transfer pricing regulations and taken up by the learned AO in completing the impugned assessment. 5. Before us, the assessee is represented by Shri S.K. Tulsiyan, Advocate and Ms. Lata Goyal, ACA and the Department by Shri Tushal Dhawal Singh, CIT. 6. Brief facts as culled out from records are that the assessee is engaged in the business of manufacturing of crown closures, PP caps, metal containers, printed sheet, metals etc. and is also engaged in the trading of ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 7 some of these products. The assessee filed its return of income for the impugned assessment year on 30/11/2014 declaring total income of Rs. 30,20,28,360/- under the normal provisions of the Act and at book profit u/s 115JB of the Act at Rs. 29,17,78,877/-. During the year under consideration, the assessee had entered into specified domestic and international transactions with its Associate Enterprises (AEs). Reference was made to the TPO by the learned AO for determination of Arms’ Length Price (ALP) of specified domestic and international transactions undertaken by the Assessee. Ld. TPO passed an order u/s 92CA(3) of the Act dated 26/10/2017 making an upward adjustment of Rs. 45,31,72,852/-. Based on the order of the ld. TPO, the ld. AO has made an upward adjustment to the total income of the assessee by the said amount in the impugned assessment. The breakup of the adjustment is as under:- (i)Receipt of interest amount(upward) Rs. 1,83,00,852/- (ii)Receipt of guarantee fees (upward) Rs. 40,71,000/- (iii)Sale of Raw Material (upward) Rs.40,77,88,000/- (iv)Purchase of goods (downward) Rs. 2,30,13,000/- Total Rs.45,31,72,852/- 7. Aggrieved by the upward adjustments made to the total income under transfer pricing regulations, the assessee went in appeal before the ld. CIT(A). Before the ld. CIT(A), on the first issue of interest earned on loan to AE, the ld. CIT(A) deleted the addition by holding that the interest rate charged by the assessee from its AE was required to be benchmarked against the prevailing LIBOR (US) in Financial Year 2013-14 i.e. 0.72% and since the interest rate charged by the assessee on the loans granted to its AE was 5%, no ALP adjustment was called for. While giving this finding and deleting the addition, the ld. CIT(A) noted that assessee had benchmarked the transaction by applying external CUP method. ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 8 7.1 On the second issue of fees for corporate guarantee, the ld. CIT(A) deleted the addition by noting the fact that when no corporate guarantee was issued by the assessee, no adjustment can be inferred in this regard. The ld. CIT(A) further noted that the TPO ought to have set out the name of the AE to whom such corporate guarantee was extended, the details of bank loan for which corporate guarantee was extended and when such corporate guarantee was released, as no facts whatsoever had been set out by the ld. TPO in his order. 7.2 On the third issue of upward adjustment made in respect of purchase and sale of raw materials and goods to AEs, the ld. CIT(A) gave his finding on the limited disputes in this respect which relate to:- (i) Manner in which the Profit Level Indicator (PLI) is to be worked out and computed. (ii) Selection and rejection of the comparable identified by the TPO as well as the assessee. 7.3 On the dispute relating to computation of PLI, the ld. CIT(A) noted that the TPO has considered the Operating Profit/Total Cost (OP/TC) to be the most appropriate PLI instead of Operating Profit/Operating Revenue (OP/OR) adopted by the assessee. On this issue, the ld. CIT(A) agreed with the TPO’s contention and directed the ld. AO for application of PLI by adopting OP/TC method. 7.4 On the dispute relating to selection and rejection of comparable, the ld. CIT(A) noted that against the broad Functions, Assets, Risks (FAR) analysis as set out in the Transfer Pricing Study Report (TPSR), the ld. TPO ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 9 has not disputed the same and by analyzing the set of comparables takne by the assessee, accepted the three comparable which were rejected by the ld. TPO and also, rejected the seven new comparables which were identified by the ld. TPO, thereby accepting all the comparables considered by the assessee in its TPSR for the purpose of benchmarking. In respect of the seven new comparables adopted by the ld. TPO, the Department has taken a ground vide Ground No. 3 (supra) wherein it is noted that ten comparables were selected by the TPO out of which three were rejected. It is noted that the TPO had taken only seven new comparables and not ten as challenged in the said ground. After dwelling on these two disputes, the ld. CIT(A) gave a direction to the ld. TPO/AO to re-work the PLI of the tested party and to re-compute the mean PLI of the comparables with reference to the accepted set of comparables, thus partly allowing the ground. 8. Aggrieved, the Department is in appeal before the Tribunal on the relief granted by the ld. CIT(A) by raising the grounds of appeal (supra), which are broadly on the three issues, namely, (a) interest earned on loan to AE, (b) fees on corporate guarantee for AE and (c) sale and purchase of raw material and other goods with AEs. 8.1 When the TPO passed the order u/s 92CA(3) r.w.s. 250 of the Act on the basis of the directions given by the ld. CIT(A), the ld. Counsel for the assessee pointed out that the PLI taken by the TPO on two comparables out of the entire set of nineteen comparables taken by the assessee was computed on a much higher level, the details of which is tabulated as under:- Company OP/OR as per assessee OP/OR as per Ld. TPO DCM Engineering Ltd -0.22% 10.83% ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 10 Dee Dee Steel Castings Ltd. -0.34% 8.49% 8.2 The ld. Counsel for the assessee further pointed out that while computing the PLI on these two comparables tabulated above, excise duty was also taken into account in the figure of Operating Revenue (OR) which resulted into a much higher level of PLI. This has led to the application of different functions while computing the PLI of the assessee and the comparables adopted. To contest this issue, the assessee filed its cross objection raising the grounds which has been admitted for adjudication by condoning the delay. 9. Before us, the ld. CIT D/R, Shri Tushar Dhawal Singh, argued the matter vehemently by placing strong reliance on the order of the ld. TPO and the ld. AO. During the course of hearing, the ld. CIT D/R submitted that he wishes to file a written note. Though the hearing was concluded as heard and order reserved, an opportunity was given to file his written note on or before 28 th March, 2022. Through an email dated 29 th March, 2022, the ld. CIT D/R sought a further time of 10 days to file his written note which was also considered before proceeding to pass this order. Till date no written submission/note has been filed on record by the ld. CIT D/R. After waiting for a reasonable length of time on his request, we deem it fit to proceed to adjudicate on the matter on the strength of his oral arguments made during the course of hearing. 10. Per contra, the ld. Counsel for the assessee, Shri S.K. Tulsiyan, submitted that the issue relating to upward adjustment made in respect of interest earned on loan to AE referred in ground no. 1 and 2 (supra) is squarely covered by the decision of the Hon’ble c-ordinate bench of ITAT ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 11 Kolkata in the assessee’s own case for the Assessment Year 2011-12, 2012-13 & 2013-14 in ITA Nos. 980/Kol/2017 order dt. 30/11/2018 and ITA No. 208- 209/Kol/2018, order dt. 28/09/2018, copy of which is placed on record in the paper book. The learned counsel for the assessee apprised the Bench on the facts of this issue and submitted that the assessee had entered into an inter- company loan transaction with its AE viz., EuroAsian Ventures FZE. In the TPSR, the assessee had stated that it had earned interest income of USD 1,39,479.45 (equivalent to ₹ 82,70,076/-) @ 5% per annum on the USD loan amount. The interest rate charged by the assessee to its AE is based on LIBOR which is 155 bps. Hence, the assessee had charged interest @ LIBOR + 345 bps which was claimed to be at ALP. He further submitted that CUP method was selected as the Most Appropriate Method (MAM) duly reported in Form 3CEB, placed on record. The ld. Counsel for the assessee submitted that since the actual interest received from the AE being @ 5% was within the prevailing LIBOR under external CUP method, it was concluded that the international transaction was at ALP. 10.1 The ld. Counsel for the assessee further argued and submitted that Hon’ble Tribunal in several decisions has consistently held that if the loan given to AE is denominated in foreign currencies, then interest rate charged thereon should be benchmarked against international rates being LIBOR and not against the domestic lending rate and that in the present case the loan advanced by the assessee to its AE is denominated in foreign currency i.e. USD, the LIBOR (US) rate has been rightly applied for benchmarking. To buttress his submission, the ld. Counsel for the assessee relied on the decision of the co-ordinate Bench of ITAT Chennai in the case of Siva Industries and Holdings Ltd. vs. ACIT [145 TTJ 497 CHY] and on the decision of the Co-ordinate Bench of ITAT Mumbai in the case of Tata Autocomp ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 12 System Ltd. vs. ACIT [149 TTJ 223 (Mum)] which was confirmed by the Hon’ble Bombay High Court. 10.2 On the second issue of adjustment made in respect of fees for corporate guarantee dealt in Ground Nos. 6 & 7 (supra), the ld. Counsel for the assessee submitted that there was no corporate guarantee extended by the assessee during the relevant assessment year which was evidenced from note no. 25 of the audited financial statements of the assessee for which reference was made to page number 28 of the paper book. Therefore, no adjustment of ALP on this count ought to be made. 10.3 The ld. Counsel for the assessee pointed out that ld. TPO has stated that he gathered from the financial statement that the assessee has issued corporate guarantee for the AE which was later on realised but since the assessee did not provide the details he proceeded to benchmark the same @ 3.125%. This observation by the TPO is outrightly arbitrary, imaginary untenable and not backed by any evidence of fact, as claimed by the ld. Counsel for the assessee. He further submitted that if by any stretch of imagination, the observations of the TPO are taken to be correct, the mater is squarely covered by the decision of the Hon’ble Coordinate Bench of the ITAT Kolkata in the assessee’s own case as noted (supra). 11. On the third issue of adjustment made on account of sales and purchase of raw material and other goods with the AEs, at the outset, the ld. Counsel for the assessee pointed out that while determining the ALP of its international transactions of sale of goods to MINL Limited, Dynateh Industries Ghana Ltd. and Jebba Paper Mills Ltd., ld. TPO has taken the figures of sales at Rs.349,41,52,817/- in the TP order. However, the correct ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 13 amount stands at a figure of Rs.339,01,06,861/- which is evident from the appendix to the TPSR and from Form 3CEB forming part of the paper book. We take note of this factual correction. The ld. Counsel for the assessee submitted that with reference to the upward adjustment of Rs.40,77,88,000/- on account of international transactions of sale of goods to AEs and downward adjustment of Rs.2,30,13,000/- on account of domestic purchase of raw material by the assessee from AE, the ld. TPO has nowhere specified as to how the assessee has applied cherry pick method in selecting the comparables so as to reject the analysis of the assessee, as alleged by the ld. TPO. It was further submitted that the filter applied and method adopted by the assessee for the competition of PLI have been duly specified in para 6.3. and para 6.4 of the TPSR, already on record. The ld. counsel for the assessee further contended that the entire exercise of the ld. TPO is based on wrong assumption of facts since the ld. TPO has stated that PLI of 3.34% was computed by the assessee taking operating cost as the base on which the income was computed whereas the correct fact is that the assessee computed its PLI by taking the operating revenue of Rs.57,072.40 lakhs and not the operating cost. He further submitted that the ld. TPO has accepted all the comparables adopted by the assessee while analyzing the ALP of sale and purchase transactions under consideration except for the three comparables out of which two were rejected primarily for non-availability of their annual report and diversified activity in one case. For the two comparables i.e., Indo Shell Cast Pvt. Ltd. and Rane Diecast Ltd., copies of their annual report available in the public domain were furnished during the course of appellate proceedings before the ld. CIT(A) who had accepted these comparables. In the case of the third comparable i.e., Besco Ltd., the ld. Counsel for the assessee submitted that NIC activity as per Capitaline database is “Manufacture of other iron and steel casting and products thereof” ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 14 which demonstrates that it is functionally comparable to the business of the assessee and the same was accepted by the ld. CIT(A) in the first appellate stage. The ld. counsel for the assessee strongly submitted that there is no dispute in the selection of TNMM as MAM to arrive at ALP neither there is any dispute in the criteria adopted by the assessee to select the comparables. The ld. TPO has by and large agreed with the general premise on which the assessee has computed its ALP. In respect of seven new comparables identified and selected by the ld. TPO, it is submitted that the selection has been made merely on the basis of their broad category of ‘Aluminium and Steel’ without examining whether the said companies manufacture similar products as that of the assessee and also without examining the nature of product supplied to the AEs. In this respect, the ld. TPO did not undertake appropriate FAR analysis of the seven new comparables selected by him as has been stipulated under Rule 10B(2) and 10B(3) of the Income Tax Rules, 1962 (hereinafter the ‘Rules’). Thus, the ld. counsel for the assessee strongly opposed the selection of seven new comparables which is not in accordance with law. The ld. counsel for the assessee thus placed strong reliance on the findings given by the ld. CIT(A) on the acceptance of the three comparables which were originally rejected by the ld. TPO and also on the rejection of the seven new comparables identified by the ld. TPO. 12. In respect of the cross objection of the assessee, the ld. counsel for the assessee pointed out that the ld. TPO has applied different functions while computing the PLI in respect of the two comparables out of the set of nineteen comparables identified by the assessee, namely, DCM Engineering Ltd. & Dee Dee Steel Castings Ltd. for which excise duty has been taken as part of the operating revenue resulting into a higher level of PLI and distorting the PLI adopted for the purpose of benchmarking. To this effect, ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 15 the ld. counsel for the assessee invited the attention of the Bench to page no. 61 of the paper book, wherein the operating profit margin of 3.34% has been worked out on the basis of operating revenue taken at Rs.57,072.40 lakhs which was further corroborated from the note no. 18 of the audited financial statements for the year under consideration placed at page number 17 of the paper book. In note no. 18 of the audited financial statements, the total revenue is shown at Rs.59,072.72 lakhs from which excise duty and service tax of Rs.2000.32 lakhs has been reduced to arrive at operating revenue of Rs.57,072.40 lakhs. The ld. counsel for the assessee thus submitted that the assessee has taken operating revenue net of excise duty for all its comparables for the purpose of benchmarking which is verifiable from Table 4 of the TPSR at page 57 of the paper book. The ld. counsel for the assessee also invited the attention of the Bench to para 50 at page 40 of the impugned order of the ld. CIT(A), wherein from serial number 8 to 11 and from serial number 14 to 23, the ld. Assessing Officer has accepted the PLI as furnished by the assessee which has been computed by taking sales net of excise duty. However, in respect of serial number 12 and 13 in the same table, the PLI of these two comparables has been taken including the excise duty, thus, distorting the benchmarking of PLI, details of these two comparables is tabulated as under:- Company OP/OR as per appellant OP/OR as per Ld. TPO DCM Engineering Ltd. (DEL) -0.22% 10.83% Dee Dee Steel Castings Ltd. (DDSCL) -.0.34% 8.49% 12.1 From the order of the ld. TPO as reproduced in the order of the ld. CIT(A), it was pointed out at page number 34 that in respect of these two comparables, ld. TPO has accepted these comparables but while computing the margin, has taken the sales inclusive of excise duty. ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 16 12.2. The ld. counsel for the assessee vehemently argued and submitted that the calculation of PLI in such a manner has led to violation of fundamental principles of calculation of the ALP. For all the comparables adopted for the computation of ALP, the PLI should be determined in accordance with the same methodology which was adopted by the assessee. Since the PLI by the assessee was computed after reducing the excise duty from sales, the same should have been followed in the case of all the comparables adopted for determining the ALP of the transactions. The ld. TPO has not maintained consistency within the comparables by including excise duty in two cases and excluding it in all other seventeen cases. The ld. counsel for the assessee referred to the chart for computation of PLI of the comparables accepted by the ld CIT(A) which is taken after netting off the excise duty. The same is placed at page 324 of the paper book, which is extracted below for ready reference:- DCM Engineering Ltd. The comparable taken by the assessee and accepted by the TPO. While margin computed by the assessee is not true. The actual margin of the comparable is 10.83% instead of-0.22% calculation as under: OR: 447.97 Cr OC: 399.45 OP/PR: 10.83% 10.83% Dee Dee Steel Castings Ltd The comparable taken by the assessee and accepted by the TPO. While margin computed by the assessee is not true. The actual margin of comparables 8.49% instead of -0.34% calculation as under: OR: 6.4 Cr OC: 5.93 Cr OP/PR: 8.49% 8.49% ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 17 13. We have heard the rival contentions. We have given thoughtful consideration to the arguments submitted during the course of hearing. Further, on careful consideration of the facts and circumstances of the case, perusal of the material on record, orders of the authorities below as well as case law cited, we record our findings as under:- ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 18 13.1 We note that essentially all the issues in the appeal and cross objection before us relate to adjustments made by the ld. TPO in reference to Transfer Pricing regulations and additions made by the ld. Assessing Officer thereon. There are broadly three issues that arise before us i.e. (a) interest earned on loan to AE (b) fees on corporate guarantee for AE and (c) sale and purchase of raw material and other goods with AEs. 13.2 In respect of the first issue listed above, we note that the same is squarely covered in favour of the assessee by the decision of the Hon’ble coordinate bench of the ITAT Kolkata in the assessee’s own case (supra), there being no change in the facts except for the quantum. Further, we find that the assessee had benchmarked the transactions of loan given to its AE by applying CUP method as mentioned in the TPSR. The assessee has obtained the prevailing LIBOR rates by applying external CUP method and considered itself as the tested party for the purpose of benchmarking the transactions. We note from the TPSR that the assessee has earned interest income of USD 1,39,479.45 (equivalent to Rs.82,70,726/-) @ 5% per annum on the USD amount which is based on LIBOR + 345 bps. 13.3 The ‘C’ Bench of ITAT Kolkata in the assessee’s own case in ITA No. 980/Kol/2017; Assessment Year 2012-13, order dt. 28/09/2018, while adjudicating the identical issue, had held as under:- “4.1. Ground No. 1, is against the deletion of upward adjustment of s.6,97,64,000/-, towards Arm's Length interest on loan given to associated enterprises. During the course of assessment proceedings, the Assessing Officer made a reference to the Transfer Pricing Officer (TPO) for calculation of arm's length interest rate in respect of loan advanced by the assessee company to its Associate Enterprise (AE), EuroAsian Ventures FZE. The TPO arrived at arm's length interest rate of 20.15%, by applying Comparable Uncontrolled Price (CUP) method and benchmarking the same against local interest rates and accordingly calculated the upward adjustment at ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 19 Rs.6,97,64,000/-. Before the ld. CIT(A), the assessee submitted that it had charged interest @ 5% on the loan given to its AE i.e. EuroAsian Ventures FZE, which is at arm's length when benchmarked against LIBOR and hence no adjustment on this account was called for. He further relied on the decision of the Chennai Bench of the Tribunal in the case of Siva Industries & Holdings Ltd. vs. ACIT (145 TTJ (Chennai) 497) and other decisions of the Tribnal for the proposition that if the loan advanced to an AE is denominated in foreign currency then interest rate thereon should be benchmarked against international rates being LIBOR and not against the domestic lending rate. Further, reliance was placed on the decision of the Delhi Bench of the ITAT in the case of Kohinoor Foods Ltd. vs. ACIT (67 SOT 108). 4.2. The ld. CIT(A) while determining the ALP of interest on loan given to AE, held that (Comparable Uncontrolled Price) CUP is the Most Appropriate Method (MAM). He disagreed with the order of the ld. Transfer Pricing Officer that US LIBOR cannot be considered as a benchmark against US Dollar denominated loan. At para 4 of his order, he held as follows:- "4. Having examined the matter, it is to be said that the case law relied upon by the appellant, namely the judgment of ITAT(Delhi) in case of Kohinoor Foods Ltd. vs. ACIT applicable in the case at hand, and covers the matter. The matter is well covered by the general consensus among the Hon'ble ITAT Benches that international transactions involving cross- border country loans to AE can be bench marked against LlBOR, as also supported by the RBI's circular that a spread ranging from 1 % - 2% over LIBOR is reasonable {or advancing loans. Therefore, in deciding the matter, it is held that an interest rate of LIBOR plus 2% can ,be held to be Arm's length rate of interest, and as for the case at hand, the interest charged by the assessee from its AE is ITA No. 980/Kol/2017 Assessment Year: 2012-13 M/s. Manaksia Limited higher than LIBOR plus 2%, the adjustment made by the ld. TPO in the case is held to be unjustified and not sustainable. The ground of appeal stands allowed accordingly." As the ld. CIT(A) has followed the propositions of law laid down by different benches of the Tribunal on this issue, we find no infirmity in the same. The Kolkata Bench of the ITAT has in a number of cases including M/s. EIH Ltd. vs. DCIT (supra) followed the same principles. Hence the order of the ld. CIT(A) on this issue is upheld and Ground No. 1 of the revenue is dismissed.” 13.4 Since the issue is already covered and has been dealt extensively by the Co-ordinate Bench of the ITAT Kolkata in the assessee’s own case and the Department has failed to suggest any exception on facts or law involved in the Assessment Year under consideration, we respectfully adopt the detailed reasoning given by the Co-ordinate Bench (supra) and accordingly dismiss the ground/s relating to this issue raised by the Department in its appeal. ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 20 13.5 On the issue of adjustment made in the fees for corporate guarantee for AE, on the perusal of the audited financial statements of the assessee, we failed to understand from where and how the ld. TPO has figured out that the assessee has issued corporate guarantee for its AE and proceeded to benchmark @ 3.125% and arrive at an upward adjustment of Rs.40,71,000/-. We fully concur with the submissions made by the ld. Counsel for the assessee as noted above that the impugned addition is arbitrary, imaginary, untenable and not backed by any evidence of fact as is also demonstrated from the additional notes on financial statements placed at page 28 of the paper book (supra). Hence, we find no reason to interfere with the factual finding given by the ld. CIT(A) while deleting the impugned adjustment of Rs.40,71,000/-. We thus, accordingly dismiss the grounds taken in this respect by the Department in its appeal. 13.6 In respect of the third issue relating to adjustment of Rs.43,08,01,000/- in respect of purchase and sale of raw material and goods with its AEs, we note that there is no dispute in the selection of TNMM as MAM to arrive at ALP neither there is any dispute in the criteria adopted by the assessee to select the comparables. Under the TNMM method adopted by the assessee, the PLA was taken as OP/OR by keeping itself as the tested party. From the perusal of the TPSR we note that FAR analysis and economic analysis was conducted by applying certain filters to arrive at a set of 19 comparables, out of which three were rejected by the ld. TPO but the ld. CIT(A) accepted them since their annual report was made available from the public domain. We also note that the ld. TPO conducted search from public database and identified additional seven comparables and considered them for the purpose of benchmark. However, from the order of the ld. TPO as reproduced in the order of the ld. CIT(A), we could not figure out any ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 21 action of FAR analysis and economic analysis conducted by the ld. TPO while identifying these new seven comparables which were rejected by the ld. CIT(A) since the product profile and functionality was not comparable with that of the assessee. We find that the issues involved on this third aspect in the appeal and the cross objection before us relate to – (i) the manner in which the PLA has been worked out (ii) selection and rejection of comparables and (iii) inclusion of excise duty on the operating revenue for two comparables out of the said 19 comparables by the ld. TPO 13.7 In respect of the issue relating to the manner in which the PLI is to be worked out, the assessee has computed it on the basis of OP/OR as the most appropriate PLI as against which the ld. TPO has considered OP/OC to be the most appropriate PLI. The ld. CIT(A) has given a finding that application of PLI as OP/OC is the most appropriate PLI and has directed the ld. TPO / AO to re-compute and re-work the PLI and the mean of PLI of the comparables. The assessee has not challenged this finding of the ld. CIT(A) and we do not find any reason to interfere with the finding given by the ld. CIT(A) to this effect. Accordingly, the PLI is to be computed on the basis of OP/OC. In respect of the issue relating to selection and rejection of comparables identified by the ld. TPO and by the assessee, we find that the ld. CIT(A) has meritoriously dealt with the matter by taking note of the FAR analysis and the economic analysis undertaken by the assessee in its TPSR which the ld. TPO failed to undertake in respect of the seven new comparables identified by him. We find force in the submissions made by the ld. Counsel of the assessee in respect of selection and rejection of comparables noted above. Accordingly, on this specific issue also we do not ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 22 find any merit in interfering with the factual findings given by the ld. CIT(A). 13.8 On the third issue relating to the effect of excise duty considered in arriving at PLI for two comparables vis-à-vis the remaining other comparables, we concur with the submissions made by the ld. counsel for the assessee in this respect and hold that for all the comparables adopted for the computation of ALP, the PLI should be determined in accordance with the same methodology which was adopted by the assessee for its entire set of comparables. The ld. TPO ought to have maintained consistency within the comparables and not to have included excise duty component in the case of two comparables while excluding it in all other cases. Ld. Counsel took us through the records to demonstrate the effect of excise duty on the computation of PLI in the case of two comparables vis-à-vis other comparables and from the perusal of the same we find that while computing the PLI, the assessee has excluded the excise duty component from the operating revenue for the purpose of benchmarking. By including excise duty in the case of two comparables by the ld. TPO, the operating profit has been artificially increased by the amount of excise duty and, therefore, the PLI computed by the learned TPO stands comparatively incorrect. We thus, find no fault with the computation of PLI after netting of excise duty done by the assessee for the purpose of benchmarking its sale and purchase transactions of raw material and goods with its AEs. The ld. CIT(A) has given a direction to the ld. TPO/AO to re-work the PLI of tested party and re-compute the mean PLI of the comparables with reference to the accepted set of comparables based on his meritorious findings. We find that giving such directions is well within the powers of the Commissioner of Income Tax (Appeals) as enunciated u/s 251(1)(a) of the Act. Accordingly ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 23 we dismiss the grounds of appeal raised by the Department on this issue and also Ground No. 3 of the cross objection of the assessee. Ground Nos. 1 and 2 of the cross-objections filed by the assessee are allowed. 14. In the result the appeal of the revenue is dismissed and the cross objection of the assessee is partly allowed. Order pronounced in the Court on 22 nd April, 2022 at Kolkata. Sd/- Sd/- (RAJPAL YADAV) (GIRISH AGRAWAL) VICE-PRESIDENT ACCOUNTANT MEMBER Kolkata, Dated 22/04/2022 *SC SrPs आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंͬधत आयकर आय ु Èत / Concerned Pr. CIT 4. आयकर आय ु Èत)अपील (/ The CIT(A)- 5. ͪवभागीय ĤǓतǓनͬध ,आयकर अपीलȣय अͬधकरण,Kolkata/DR,ITAT, Kolkata 6. गाड[ फाईल /Guard file. आदेशान ु सार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलȣय अͬधकरण ITAT, Kolkata ITA No. 1611/Kol/2019 Assessment Year : 2014-15 C.O. No. 13/Kol/2021 Assessment Year : 2014-15 M/s. Manaksia Limited 24 1. Date of dictation- 21/04/2022 2. Date on which the typed draft is placed before the Dictating Member 22/04/2022 Other member 22/04/2022 3. Date on which the approved draft comes to the Sr.P.S./P.S. - /04/2022 4. Date on which the fair order is placed before the Dictating Member for Pronouncement /04/2022 5. Date on which the file goes to the Bench Clerk /04/2022 6. Date on which the file goes to the O.S. .................................. 7. The date on which the file goes to the Assistant Registrar for signature on the order..................... 8. Date of Despatch of the Order......................