Appeal details
Counselvise Citation
[2017] 123 COUNSELVISE.COM (IT) 2773 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 7 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
22-02-2017
Appeal Filed By
Assessee
Bench Allotted
D
Next Hearing Date
20-12-2016
Assessment Year
2009-2010
Appeal Filed On
01-07-2014
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , ! ' .. # $!% , ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ! ./ ITA NO.1037/MDS/2014 * +* /ASSESSMENT YEAR: 2009-10 & CROSS OBJECTION NO.58/MDS/2014 * +* /ASSESSMENT YEAR: 2009-10 THE DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(2), ROOM NO.512, FIFTH FLOOR, NEW BLOCK, 121, MAHATMA GANDHI ROAD, CHENNAI 600 034. VS. M/S HANIL TUBE INDIA PVT LTD., PLOT NO.B-75, SIPCOT, INDUSTRIAL PARK, IRUNGATTUKOTTAI, SRIPERUMBUDUR, KANCHEEPURAM DISTRICT, TAMILNADU 602 105. [PAN: AABCH 8885 Q ] ( ,- /APPELLANT) ( ./,- /RESPONDENT) ,- 0 1 / APPELLANT BY : MR.MILIND MADUKAR BUSHARI, CIT ./,- 0 1 /RESPONDENT BY : MR.S.P.CHIDAMBARAM, ADV. # 0 2' /DATE OF HEARING : 20.12.2016 34+ 0 2' /DATE OF PRONOUNCEMENT : 22.02.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE DIRECTIONS OF THE DRP IN F.NO.DRP/CHE/16/2013 DATED 20/12/2013 AND TH E CONSEQUENTIAL ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 2 -: ASSESSMENT ORDER PASSED BY THE DCIT-II(2), CHENNAI U/S.143(3) R.W.S.144C(13) DATED 24/02/2014. THE ASSESSEE ALSO FILED CROSS OBJECTIONS AGAINST THE AO/DRP ORDER WHICH WAS NUMBE RED AS CO NO.58/MDS/2014. THE REVENUE HAS RAISED THE FOLLOWIN G GROUNDS CHALLENGING THE DIRECTIONS GIVEN BY DRP AND CONSEQU ENT ASSESSMENT ORDER: 1. THE DIRECTIONS OF THE HONBLE DISPUTE RESOLUTION PANEL IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE HONBLE DRP ERRED IN DIRECTING THE TPO TO INC LUDE M/S.CEEKAY DAIKIN LIMITED, THE ASSESSEES COMPARABLE WHICH WAS REJECTED BY THE TPO. 2.1 THE HONBLE DRP FAILED TO NOTE THAT IT IS AN EX CEPTIONAL YEAR OF OPERATION FOR M/S.CEEKAY DAIKIN LIMITED, DURING WHICH YEAR THE CO MPANY HAS VENTURED IN MANUFACTURING A NEW VARIETY OF CLUTCH, VIZ., ONE WAY CLUTCH AND THE START UP COST INCURRED IN THE NEW PRODUCT LINE HAS AFFECTED THE COMPANYS MARGIN. HEN CE, THE COMPANY CANNOT BE ADOPTED AS A COMPARABLE. 2.2 THE HONBLE DRP OUGHT TO HAVE NOTED THAT AS PER THE DECISION OF THE HONBTE ITAT BANGALORE IN THE CASE OF TRILOGY E BUSINESS VS. DCI T, IF THERE ARE SPECIFIC REASONS FOR ABNORMAL PROFITS OR LOSSES OR OTHER GENERAL REASONS AS TO WHY THEY SHOULD NOT BE REGARDED AS COMPARABLES, THEN THEY CAN BE EXCLUDED FOR COMPA RABILITY. 2.3 THE HONBLE DRP OUGHT TO HAVE APPRECIATED THAT AS EVIDENT FROM THE SCHEDULES OF THE BALANCE SHEET, THERE ARE DETAILS OF AMALGAMATED SHA RES OF THE COMPANY WITH ITS ERSTWHILE SHAREHOLDER M/S.EXEDY CEEKAY LIMITED AND HENCE THE COMPANY CANNOT BE TAKEN AS A COMPARABLE. 3. THE HONBLE DRP ERRED IN DIRECTING THE TPO TO EXC LUDE THE FOREX LOSS ON FROM THE COMPUTATION OF OPERATING COST OF THE ASSESSEE. 3.1 THE HONBLE DRP OUGHT TO HAVE NOTED THAT THE LO SS ARISES ONLY DUE TO SALES OR PURCHASE ACTIVITIES WHICH ARE REVENUE IN NATURE AND ACCORDIN GLY THE LOSS HAS TO BE PART OF OPERATING COST. 3.2 THE HONBLE DRP FAILED TO NOTE THAT AS PER THE OECD GUIDELINES, THE FOREX LOSSES OR GAINS ARISING DUE TO REVENUE TRANSACTIONS SHALL FOR M PART OF THE OPERATING ITEM. 3.3 THE HONBLE DRP ERRED IN NOT CONSIDERINGE THE D ECISION OF THE HONBLE ITAT IN THE CASE OF M/S. ZENTA KNOWLEDGE SERVICE PRIVATE LIMITED AND M/S.MERCEDES BENZ R & D INDIA PRIVATE LIMITED, WHEREIN THE ITAT HAS LAID DOWN THE PRINCIPLE THAT THE FOREX GAIN / LOSS SHOULD BE CONSIDERED AS AN OPERATING ITEM. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTION OF THE HONBLE DRP MAY BE SET AS IDE AND THE ORDER OF THE TRANSFER PRICING OFFICER BE RESTORED. ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 3 -: 2.0 M/S.HANIL TUBE INDIA LTD., (HTIL) IS ENGAGED IN MAN UFACTURING OF TUBES, PIPES, AUTOMOTIVE COMPONENTS AND TUBULAR PRO DUCTS PRIMARILY FOR THE AUTO INDUSTRY. M/S.HTIL CATERS TO THE REQUIREM ENT ONLY ONE ORIGINAL EQUIPMENT MANUFACTURER (OEM) HYNDAI MOTORS INDIA LIMITED (HMIL) AND HENCE IT DEPENDENT ON ALL ITS SALES. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSIN G OFFICER (AO) FOUND THAT THE ASSESSEE HAS REPORTED THE INTERNATIONAL TRANSACTION IN FORM - 3CEB AS FOLLOWS: S. NO. NAME OF THE ASSOCIATED ENTERPRISE DESCRIPTION OF TRANSACTION AMOUNT (IN ) METHOD ADOPTED 1 HANIL TUBE CORPORATION, KOREA PURCHASE OF VARIOUS COMPONENTS 28,60,250.00 TNMM 2 TI AUTOMOTIVE, KOREA PURCHASE OF VARIOUS COMPONENTS 16,67,11,762.00 TNMM 3 HANIL TUBE CORPORATION, KOREA JIGS AND FIXTURES AND MACHINERY 21,21,430.00 CUP/TNMM 4 TI AUTOMOTIVE, KOREA JIGS AND FIXTURES AND MACHINERY 29,90,928.00 CUP/TNMM 5 HANIL TUBE CORPORATION, KOREA REIMBURSEMENT OF EXPENSES* *1,35,55,629.00 TNMM TOTAL 18,82,39,999.00 - *IN THE TP STUDY REPORT, THE ASSESSEE HAD SUBMITTED THAT IT HAS INCURRED TECHNICAL SERVICES FEE OF 1,14,41,552/- WHICH IS INCLUDED UNDER THE HEAD REIM BURSEMENT OF EXPENSES IN FORM-3CEB. 3.0 THE ABOVE INTERNATIONAL TRANSACTION OF 18,18,82,999/- HAS BEEN REFERRED TO THE TPO FOR DETERMINING THE ALP. THE AS SESSEE COMPANY ACCEPTED TNMM AS MOST APPROPRIATE METHOD AND TAKEN OPERATING PROFIT/OPERATING INCOME (OP/OI) AS PLI. THE ASSESS EES PLI WAS BENCH MARKED WITH THAT OF THE COMPARABLES CHOSEN BY THE A SSESSEE AND HELD THAT TRANSACTIONS WERE AT ARMS LENGTH. WHILE SELECT ING THE COMPARABLES, ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 4 -: THE ASSESSEE HAS SELECTED PUBLIC LIMITED COMPANIES AS COMPARABLES AND ELIMINATED THE PRIVATE LIMITED COMPANIES IN SELECTI ON OF COMPARABLES. THE REASON GIVEN BY THE ASSESSEE FOR SELECTING PUBLIC L IMITED COMPANIES WAS THAT IT WAS VERY DIFFICULT TASK TO GET THE DATA OF PRIVATE LIMITED COMPANIES (THE FINANCIAL DATA FOR PRIVATE LIMITED COMPANIES C OULD BE AVAILABLE ONLY FROM THE REGISTRAR OF COMPANIES) HENCE DECIDED NO T TO CONSIDER THE PRIVATE LIMITED COMPANIES AS COMPARABLES. THE REAS ONS GIVEN BY THE ASSESSEE TO RESTRICT COMPARABLES TO PUBLIC LTD. COM PANIES WAS NOT ACCEPTED BY THE TPO SINCE THE DATA IS AVAILABLE IN PUBLIC DOMAIN. THE ASSESSEE COMPANY BEING PVT. LTD. COMPANY, THE TPO W AS OF THE VIEW THAT THE ASSESSEE SHOULD HAVE INCLUDED THE PRIVATE LTD. COMPANIES, ALSO AS COMPARABLES. THE ASSESSEE DECLINED FOR INCLUSION OF PRIVATE LTD COMPANIES SINCE THE DATA FROM PUBLIC DOMAIN IS ONLY AVAILABLE ON PAYMENT BUT NOT FREELY. THE ASSESSEE ALSO USED MULTIPLE YEAR DATA FOR ARRIVING THE MARGIN AGAINST THE RULES OF CONTEMPORANEOUS DATA. THE ASSE SSEE FURTHER STATED BEFORE THE TPO THAT THE TRANSFER PRICING STUDY COND UCTED BY THE ASSESSEE WAS AS PER THE INDIAN TP REGULATIONS IN SECTIONS 92 , 92A AND 92F OF INCOME TAX ACT. THE TPO AFTER CONSIDERING THE EXPLA NATION OF THE ASSESSEE EXCLUDED THE FOUR COMPANIES GIVEN FROM THE LIST OF 11 COMPANIES. AS PER THE DETAILED REASONING GIVEN IN T HE TP ORDER FOR ARRIVING AT THE MARGIN, THE FOLLOWING LIST OF COMPANIES WERE EXCLUDED BY THE TPO: A) M/S.I.P.RINGS LTD B) M/S.AUTOLITE INDIA LTD. C) M/S.G.S.AUTO INTERNATIONAL LTD. D) M/S.CEEKAY DAIKIN LTD.(PRESENTLY KNOWN AS M/S.EXEDY CEEKAY LTD.) ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 5 -: 4.0 THE TPO CONDUCTED INDEPENDENT SEARCH PROCESS AND O PINED THAT FOR EXTERNAL TNMM, SELECTION OF COMPARABLES SHOULD BE A T SIMILAR FUNCTIONS AND PRODUCTS AND SELECTED THE FOLLOWING COMPARABLE S. S. NO. NAME OF THE COMPANY OPERATING PROFIT ---------------------- OPERATING INCOME TPOS COMPARABLES : 1 M/S.AMTEK RING GEARS LIMITED 16.52 2 M/S.HIGHWAY INDUSTRIES LIMITED 9.62 3 M/S.JAY BHARATH EXHAUST SYSTEMS LIMITED 5.80 4 M/S.RAMBAL LIMITED 12.19 5 M/S.TALBROS AUTOMOTIVE COMPONENTS LIMITED 5.59 ASSESSEES COMPARABLES: 6 M/S.ANG AUTO INDUSTRIES LIMITED (ANG AUTO LTD.) 1 4.29 7 M/S.BIMETAL BEARINGS LIMITED 6.82 8 M/S.KAR MOBILES LIMITED 5.05 9 M/S.LUMAX AUTOMOTIVE SYSTEMS LIMITED 5.75 10 M/S.RAUNAQ AUTOMOTIVE COMPONENTS LIMITED 5.28 11 M/S.SAMKRG PISTONS AND RINGS LIMITED 6.01 12 M/S.INDIA NIPPON ELECTRICALS LIMITED 6.28 AVERAGE 8.27 ASSESSEES MARGIN 2.43 5.0 FROM THE COMPARABLES, THE TPO ARRIVED AT THE AVERA GE MARGIN OF 8.27% AGAINST THE ASSESSEES MARGIN OF 2.43% AND IS SUED SHOW CAUSE NOTICE FOR DETERMINING THE ALP AS FOLLOWS: S.NO. DESCRIPTION 1 ASSESSEES MARGIN(A) 2.43% 2 A.M OF COMPARABLE MARGIN (B) 8.27% 3 OPERATING SALES MANUFACTURING (C) 55.09% 4 EXPENSES MADE TO/PURCHASES FROM AE (AE COST) 18.1 0 CR. 5 IF THE SALES IS 100, COST INCURRED BY THE ASSESS EE 97.57 6 IF THE SALES IS 100, COST EXPECTED TO BE INCURRED BY THE ASSESSEE, WITH A PROFIT MARGIN OF 8.83% 91.73 7 ALP OF AE COST (18.10 * 91.73/97.57) 17.02 CR. 8 ACTUAL AE COST 18.10 CR. 9 DIFFERENCE PROPOSED TO BE ADJUSTED 1.08 CR. ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 6 -: 6.0 THE ASSESSEE FILED REPLY TO THE SHOW CAUSE NOTICE OBJECTING FOR EXCLUSION OF THE FOLLOWING COMPARABLES SELECTED BY THE ASSESSEE: I) M/S.G.S.AUTO INTERNATIONAL LTD. II) M/S.CEEKAY DAIKIN LTD.(PRESENTLY KNOWN AS M/S.EXEDY CEEKAY LTD) 6.1 THE ASSESSEE HAD OBJECTED FOR INCLUSION OF THE FOL LOWING COMPARABLES SELECTED BY THE TPO: 1. M/S.AMTEK RING GEARS LIMITED. 2. M/S.HIGHWAY INDUSTRIES LIMITED. 3. M/S.RAMBAL LIMITED. 6.2 THE ASSESSEE ALSO SUBMITTED FOR INCLUSION OF THE F OLLOWING ADDITIONAL COMPARABLES: 1) M/S.FEDERAL-MOGUL BEARINGS INDIA LTD. 2) M/S.INDIA JAPAN LIGHTING PVT. LTD. 3) M/S.JAY BHARAT EXHAUST SYSTEMS LTD. 4) M/S.MUBEA SUSPENSION INDIA LTD. 5) M/S.R S M AUTOKAST LTD. 6) M/S.REMSONS INDUSTRIES LTD. 7) M/S.SOMIC Z F COMPONENTS LTD. 8) M/S.TALBROS AUTOMOTIVE COMPONENTS LTD. 9) M/S.VAID ELASTOMER PROCESSORS LTD. 10) M/S.VICTOR GASKETS INDIA LTD. THE TPO CONSIDERED THE REPLY OF THE ASSESSEE A ND REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE FOR EXCLUSION AND INCLUSION OF COMPARABLES AND ALSO REJECTED THE ASSESSEES REQUES T FOR ADDITIONAL COMPARABLES. IN RESPECT OF USE OF MULTIPLE YEAR D ATA THE TPO REJECTED THE SAME AND ADOPTED THE DATA RELATING TO THE FINAN CIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. TH E TPO ADOPTED THE PLI OF 8.27% AS WORKED OUT ABOVE AND DETERMINED THE ALP OF PURCHASE COST AT 17.49 CR. AGAINST THE ACTUAL COST OF 18.60 CR. AND SUGGESTED FOR ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 7 -: DOWNWARD ADJUSTMENT OF 1.11 CR. THE ASSESSING OFFICER ISSUED DRAFT ASSESSMENT ORDER PROPOSING THE ADJUSTMENT SUGGESTED BY THE TPO. 7.0 THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP AGAIN ST THE DRAFT ASSESSMENT ORDER AGITATING THE SELECTION OR REJECTI ON OF COMPARABLES, APPLICATION OF RPT FILTER @25% , ADJUSTMENT OF WORKING CAPITAL, IDLE CAPACITY ADJUSTMENT EXCLUSION OF FOREIGN EXCHANGE L OSS FOR OPERATING PROFIT AND FOR INCLUSION OF ADDITIONAL COMPARABLES. THE DR P CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE AND ISSUED THE FO LLOWING DIRECTIONS: I) THE DRP UPHELD THE FILTERS OF RPT TRANSACTION OVER 25%. II) THE DRP IS DIRECTED THE AO/TPO TO INCLUDE THE M/S.CE EKAY DAIKIN LTD., AS COMPARABLE. III) THE DRP REJECTED THE ASSESSEES REQUEST FOR CONSIDE RING THE ALTERNATE SET OF COMPARABLES PROVIDED BY THE ASSESSEE AS THEY ARE CHERRY PICKED. 7.1 THE ASSESSEE ALSO OBJECTED BEFORE THE DRP REGARDIN G THE WORKING OF PLI AND ARGUED FOR INCLUSION OF INTEREST EXPENDITUR E FOR WORKING OF PLI. THE DRP HAS REJECTED THE CONTENTION OF THE ASSESSEE FOR INCLUSION OF INTEREST EXPENDITURE. 7.2 THE ASSESSEE ALSO RAISED OBJECTIONS FOR EXCLUSION OF FOREIGN EXCHANGE LOSS AND DRP DIRECTED THE TPO TO EXCLUDE F OREIGN EXCHANGE LOSS FOR COMPUTATION OPERATIONAL INCOME OF THE ASSESSEE AS WELL AS THE COMPARABLES. SIMILAR IS THE CASE WITH THE FOREIGN EXCHANGE GAIN ALSO. 7.3 THE ASSESSEE HAS RAISED OBJECTION FOR ADJUSTMENT OF WORKING CAPITAL AND IDLE CAPACITY UTILIZATION WHICH WAS REJECTED BY THE DRP. ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 8 -: 7.4 THE ASSESSEE RAISED THE OBJECTIONS FOR EXCLUDING THE COMPANIES WITH DIFFERENT ACCOUNTING PERIOD WHICH WAS REJECTED BY T HE DRP. ON RECEIPT OF THE DIRECTIONS FROM THE DRP, T HE AO PASSED THE ASSESSMENT ORDER ASSESSING THE TOTAL LOSS AT 2,62,22,219/-. THE DIRECTIONS OF THE DRP RESULTED IN TP ADJUSTMENT AT RS.NIL AGAINST THE PROPOSED ADJUSTMENT OF 1.11 CR. SUGGESTED BY TPO. THEREFORE, THE REVENUE IS IN APPEAL AGAINST THE DIRECTIONS OF THE DRP AND THE ASSESSEE FILED CROSS-OBJECTIONS. REVENUES APPEAL : 8.0 GROUND NOS.1 & 4 ARE GENERAL IN NATURE WHICH DO NOT REQUIRE SPECIFIC ADJUDICATION. 9.0 GROUND NOS.2 TO 2.3 ARE RELATED TO THE INCLUSIO N OF M/S.CEEKAY DAIKIN LTD., AS COMPARABLE. THE ASSESSEE ARGUED BEF ORE THE DRP NOT TO EXCLUDE M/S.CEEKAY DAIKIN LTD., FROM THE COMPARABLE S SINCE THE FUNCTIONS OF THE COMPANY ARE THE SAME. THE DRP AFTER CONSIDE RING THE OBJECTIONS RAISED BY THE ASSESSEE DIRECTED THE AO TO INCLUDE M /S.CEEKAY DAIKIN LTD., AS COMPARABLES FOR DETERMINING THE MARGIN. 9.1 AGGRIEVED BY THE ORDER OF DRP, THE DEPARTMENT HAS FILED APPEAL BEFORE THIS TRIBUNAL. ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 9 -: APPEARING FOR THE REVENUE, THE LD.DR ARGUED THAT IT IS AN EXCEPTIONAL YEAR OF OPERATION FOR M/S.CEEKAY DAIKIN LTD. DURING THE YEAR THE COMPANY HAS VENTURED IN TO MANUFACTURING OF NEW VARIETY OF CLUTCH I.E. ONE WAY CLUTCH AND THE STARTUP COST INCURRED I N THE NEW PRODUCT LINE HAS AFFECTED THE COMPANYS MARGIN. THE LD.DR SUBMIT TED THAT IF SPECIFIC REASONS EXISTS FOR ABNORMAL PROFITS OR LOSS OR OTHE R GENERAL REASONS WHICH WILL HAVE MATERIAL EFFECT ON PROFIT MARGINS OF SUCH COMPANY SHOULD BE EXCLUDED AS COMPARABLE. IT IS EVIDENCED FROM THE B ALANCE SHEET OF M/S.CEEKAY DAIKIN LTD THAT IT HAS BEEN AMALGAMATED WITH THE M/S.EXEDY CEEKAY LTD., AND THERE WERE CIRCUMSTANCES PREVAILIN G FOR EXCLUSION FROM THE COMPARABLES. ACCORDING TO THE LD.DR, THE TPO H AS RIGHTLY EXCLUDED M/S.CEEKAY DAIKIN LTD. ON THE OTHER HAND, THE LD.AR ARGUED THAT IT IS NOT DISPUTED THAT THE COMPANIES FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND THE COMPANY M/S.CEEKAY DAIKIN CONTINUES TO BE IN TH E SAME LINE OF BUSINESS. THE DRP HAS UPHELD THE FUNCTIONAL SIMILA RITY. THE NEW PRODUCT ONE WAY CLUTCH IS ALSO PART OF REGULAR OPERATIONS O F COMPANYS AUTO AUXILIARY BUSINESS. THEREFORE, MERELY BECAUSE IT H AS INTRODUCED A NEW PRODUCT IT DOES NOT MEAN THAT THE SAID COMPANY CANN OT BE CONSIDERED AS A COMPARABLE. ACCORDING TO THE LD.AR, THE DRP HAS RI GHTLY DIRECTED THE TPO TO INCLUDE M/S.CEEKAY DAIKIN LTD., AS COMPARABLE. 9.2 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED ON RECORD. THE ASSESSEE COMPANY IS ENGAGED IN THE MANU FACTURE OF TUBE ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 10 -: PIPES AUTOMATIC COMPONENTS AND TUBULAR PRODUCTS PRI MARILY IN THE AUTO INDUSTRY. M/S.CEEKAY DAIKIN LTD., IS ALSO IN THE MA NUFACTURING OF AUTOMOTIVE COMPONENTS FOR THE AY 2008-09. TPO EXCL UDED FROM THE COMPARABLES UNDER THE IMPRESSION THAT IT HAS INCURR ED CASH LOSSES DUE TO INTRODUCTION OF A NEW PRODUCT ONE WAY CLUTCH FOR THE TWO WHEELERS SEGMENTS WHICH INVOLVES START UP COSTS AND HAS AMAL GAMATED WITH M/S.EXEDY CEEKAY LTD., FOR ACQUIRING 121340 EQUITY SHARES OF M/S.CEEKAY DAIKIN LTD., WITH M/S.EXEDY CEEKAY LTD., DIRECTOR S REPORTS SUPPORTS THE INTRODUCTION OF NEW PRODUCT AND HIGH COST OF RAW MA TERIAL AND DEPRECIATION RESULTED IN LOSS OF COMPANY. THE DRP OBSERVED THAT THERE WAS NO AMALGAMATION DURING THE FY 2008-09 AND THE COMPANIE S ARE COMPARABLE FUNCTIONALLY. THERE WAS NO CHANGE IN THE METHOD OF ACCOUNTING, DEPRECIATION AND INVENTORY AS MENTIONED BY THE TPO IN HIS ORDER. THERE WAS NO CHANGE IN THE SHAREHOLDING AND THE FUNCTIONA L COMPARABILITY. THE COMPANY MANUFACTURES CLUTCH SYSTEM AND AUTO COMPONE NTS AND THE LD.AR FURTHER BROUGHT TO OUR NOTICE THAT THE SALE VALUE O F ONE WAY CLUTCH HAS A PERCENTAGE OF TOTAL TURNOVER ONLY 4.25% AMOUNTING T O 4.06 CR. OUT OF THE TOTAL TURNOVER OF 118.98 CR. WHICH IS INSIGNIFICANT. THE LD.AR BROUGH T TO OUR NOTICE THAT THERE WERE NO EXTRAORDINARY EVENTS I.E. NO AMALGAMATION DURING THE YEAR AND NO CHANGE IN THE ACCOUNTING POL ICIES. THOUGH, THE TPO NOTICED THAT THE PROFITS HAVE BEEN REDUCED DUE TO S TART UP COSTS OF NEW PRODUCT ONE WAY CLUTCH NO EVIDENCE HAS BEEN PLACE D BEFORE US AND THE ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 11 -: LD.DR DID NOT CONTROVERT THE FACTS. THEREFORE, WE D O NOT FIND ANY INFIRMITY IN THE DIRECTIONS OF THE DRP AND UPHOLD THE ORDER O F THE DRP. 10.0 GROUND NOS.3 TO 3.3 ARE RELATED TO THE FOREIGN EXC HANGE (IN SHORT FOREX) LOSS. THE TPO HAS NOT CONSIDERED THE FOREX LOSS AS NON-OPERATIVE IN NATURE WHILE CALCULATING THE OPERATIVE MARGIN OF THE COMPANY. THE DRP HAS DIRECTED THE TPO TO EXCLUDE THE FOREX LOSS FROM THE OPERATING INCOME AS WELL AS FROM THE COMPARABLES SIMILARLY FOREX GAI N ALSO SHOULD BE EXCLUDED. 10.1 AGGRIEVED BY THE ORDER OF THE DRP, THE REVENUE IS ON APPEAL BEFORE US. THE LD.DR ARGUED THAT FOREX LOSS IS AN OPERATIV E INCOME WHICH ARISES ONLY DUE SALES OR PURCHASE ACTIVITIES WHICH ARE REV ENUE IN NATURE AND IT SHOULD BE PART OF OPERATING LOSS. ACCORDING TO THE OECD GUIDELINES, THE FOREX LOSS OR GAIN ARISING DUE TO REVENUE RECEIPT S HALL FORM PART OF OPERATING INCOME. THE REVENUE RELIED ON THE DECISIO N OF THE HONBLE ITAT IN THE CASE OF M/S.ZENTA KNOWLEDGE SERVICE PRIVATE LIMITED AND M/S.MERCEDES BENZ R&D INDIA PVT. LTD., WHEREIN THE HONBLE ITAT CONSIDERED THE FOREX LOSS AS AN OPERATING LOSS. ON THE OTHER HAND, THE LD.AR SUBMITTED THAT THE DRP DIRECTED THE TPO TO EX CLUDE FOREX GAIN/LOSS PLACING RELIANCE ON SAFE HARBOUR RULES. THE LD.AR FURTHER SUBMITTED AS UNDER: ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 12 -: SAFE HARBOR RULES PROVIDES FOR EXCLUSION OF FOREX G AIN/LOSS FROM OPERATING PROFIT. FOREX GAIN/LOSS SHOULD BE EXCLUDED BECAUSE IT WOULD NOT BE POSSIBLE TO ASCERTAIN THE REVENUE/CAPITAL NATURE OF FOREX GAIN/LOSS IN CASE O F COMPARABLE COMPANIES. IT IS PERTINENT TO NOTE THAT THE FOREX LOSS/ GAIN A RISES DUE TO TRANSACTION WITH INDIAN BANKER WHILE BUYING/SELLING THE FOREX AND NO GAIN ACCRUES TO AES . FOR EG. IF AT THE TIME OF AGREEING THE PRICE WITH AE IF 1 USD IS INR 50 AND POST PLACING THE ORD ER, RECEIVING THE GOODS, AT THE TIME OF PAYMENT IF 1USD IS 52 RUPEES THEN THE ASSESSEE WOULD HAVE P AID INR 52 TO BANK FOR 1 USD TO REMIT THE SAME TO AE. IN THIS REGARD, IT IS PERTINENT TO NOTE THAT AE HAS NOT GAINED ANYTHING. AE HAS RECEIVED ONLY 1 USD AS AGREED. IT IS DUE TO THE MACRO-ECONOM IC FACTOR/MARKET FORCES, THE ASSESSEE HAD TO PAY ADDITIONAL INR 2 TO BANKER FOR SECURING THE 1US D. FURTHER, IT IS SUBMITTED THAT THERE IS NO STATUTORY DEFINITION FOR THE TERM OPERATING EXPENSES UNDER THE INCOME-TAX ACT, 1961. GENERAL RULE OF STATUTORY INTERPRETATION PERMITS BORROWAL OF DEFINITION FROM SUPPLEMENTARY ACTS/RULES/REGULATION. ACCORDING LY, THE SAFE HARBOR RULE WHICH IS ISSUED BY THE CBDT BY VIRTUE OF THE POWERS VESTED IN IT UNDER SECTION 119 OF THE INCOME-TAX ACT, THE DEFINITION MENTIONED THEREIN COULD BE BORROWED AND ADOPTED HEREIN. ACCORDING TO RULE 10TA(J) OF THE SAFE HARBOR RULES, THE TERM OF OPERATING EXPEN SES HAS BEEN DEFINED TO MEAN CERTAIN EXPENSES OTHER THAN LOSS OF ACCOUNT OF FOREIGN EXCH ANGE FLUCTUATION. THEREFORE, WHEN INCOME-TAX ADMINISTRATOR INDICATES THAT SUCH EXPENSES CANNOT B E TREATED AS OPERATING EXPENSES, THE SAME LOGIC SHOULD BE APPLIED IN THE INSTANT CASE WHILE C OMPUTING THE MARGINS OF THE ASSESSEE. FURTHER, THE OBJECTIVE OF UNDERTAKING DETAILED FUNC TIONAL ANALYSIS (FAR ANALYSIS) IS ONLY TO DETERMINE THE FUNCTIONS, ASSETS AND RISKS BORNE BY EACH PARTY TO THE TRANSACTION AND UNDERTAKE APPROPRIATE ADJUSTMENT FOR SUCH DIFFERENCES. THE BA SIC PRINCIPLE IS THAT THE PARTY WHO BEARS THE RISK WOULD HAVE THE RIGHT TO UNDERTAKE THE ADJUSTMENT. F OR EXAMPLE, IF CAPACITY UTILIZATION RISK IS BORNE BY TESTED PARTY AS PER FAR ANALYSIS IN TP REPORT AN D IF THERE IS UNDER ABSORPTION OF FIXED OVERHEADS DUE TO UNDER-UTILIZATION OF CAPACITY THEN THE TESTE D PARTY WOULD HAVE THE RIGHT TO UNDERTAKE THE CAPACITY UTILIZATION ADJUSTMENT. HENCE, THE CONCLUSION MADE STATING THAT, SINCE FORE X RISK IS BORNE BY THE ASSESSEE AS PER FAR ANALYSIS, FOREX GAIN/LOSS WOULD FORM PART OF OPERAT ING EXPENSES AND HENCE THE ASSESSEE CANNOT CLAIM THE FOREX ADJUSTMENT IS TOTALLY ERRONEOUS AND DEFIES THE BASIC PRINCIPLES OF RISK ADJUSTMENT CONCEPT. GIVEN THAT UNDER TRANSFER PRICING PROVISIONS, THE O BJECTIVE IS TO DETERMINE THE ARMS LENGTH PRICE OF TRANSACTION AND TO SEE IF ANY PROFITS ARE SHIFTED T O AES, THE FOREX LOSS/GAIN ARISING OUT OF EXTERNAL MARKET FORCES ARE TO BE EXCLUDED AS THE SAME ARE NO T UNDER THE CONTROL OF THE ASSESSEE OR THE AES. GIVEN THE ABOVE, FOR DETERMINING THE ALP OF TRANSAC TION WITH AES, THE FOREX FLUCTUATIONS SHOULD BE EXCLUDED. THIS IS ALSO THE POSITION TAKEN BY CDBT I N COMPUTATION OF MARGINS UNDER SAFE HARBOR PROVISIONS. IT IS PERTINENT TO NOTE THAT THIS REINSTATEMENT WAS MADE ONLY FOR THE PURPOSE OF COMPLYING WITH THE ACCOUNTING STANDARDS. THEREFORE, FOREX LOSS ON ACCO UNT OF RESTATEMENT IS A NOTIONAL LOSS ACCOUNTED ONLY TO COMPLY WITH AS. THE ASSESSEE ALSO RELIED ON THE FOLLOWING DECISION S OF THE TRIBUNAL: A) AIRBUS INDIA OPERATIONS PRIVATE LIMITED (IT(TP) A N O.35/BANG/2014), B) D.A. JHAVERI (ITA 5161/MUM/2007), THE HONBLE MUMBA I TRIBUNAL ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 13 -: 10.2 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE CLAIMED FOREIGN EXCHANGE LO SS AMOUNTING TO 3.06 CR. WHICH WAS CONSIDERED BY THE TPO AS OPERATING IN COME FOR COMPUTING PLI. HE DID NOT EXCLUDE THE SAME. OUT OF FOREIGN EXCHANGE LOSS OF 3.06 CR. AN AMOUNT OF 1.41 CR. WAS ON ACCOUNT OF REINSTATEMENT OF BALANCE S OUTSTANDING AT THE END OF THE YEAR. ACCORDING TO TH E LD.DR, THE FOREIGN EXCHANGE LOSS REPRESENTS OPERATING INCOME AND ACCOR DING TO THE LD.AR FOREIGN EXCHANGE LOSS WOULD NOT GIVE ANY BENEFIT TO THE AE AND IT IS THE LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION WHI CH IS UNFORESEEN EXPENSES BY THE ASSESSEE. THEREFORE, THE FOREIGN E XCHANGE LOSS OR GAIN ARE TO BE EXCLUDED FROM THE OPERATING INCOME. FORE IGN EXCHANGE LOSS OR GAIN DUE TO REINSTATEMENT OF BALANCE OUTSTANDING AT THE END OF THE YEAR CANNOT BE HELD AS OPERATING PROFIT/LOSS SINCE THE S AME IS ON ACCOUNT OF NOTIONAL LOSS TO COMPLY WITH THE ACCOUNTING STANDAR DS. WITH REGARD TO THE FOREIGN EXCHANGE LOSS INCURRED IN BUSINESS OPERATIO NS FOR PURCHASE OF MATERIALS OR FOR INTERNATIONAL TRANSACTION DO NOT G IVE ANY EXTRA BENEFIT TO THE AE WHO SUPPLIES THE MATERIAL, SINCE THE AE RECE IVES THE PAYMENT IN FOREIGN EXCHANGE AND THE ASSESSEE ALSO MAKES THE PA YMENT IN FOREIGN EXCHANGE. THE LOSS WAS DUE TO EXCHANGE DIFFERENCE BETWEEN THE FOREIGN CURRENCY AND THE INDIAN CURRENCY. THEREFORE, WHILE COMPUTING THE PLI, OPERATING INCOME FOR THE PURPOSE OF PLI, BOTH FOREI GN EXCHANGE LOSS OR GAIN SHOULD BE EXCLUDED FROM THE OPERATING INCOME. THE DRP HAS ALLOWED ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 14 -: LOSS ON FOREX TO EXCLUDE FROM THE OPERATING INCOME, RELYING ON THE SAFE HARBOUR RULES WHICH PROVIDE FOR EXCLUSION OF FOREX LOSS FROM OPERATING EXPENSES. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DIRECTIONS GIVEN BY THE DRP TO EXCLUDE BOTH FOREIGN EXCHANGE LOSS OR GAIN OF THE TESTED PARTY AS WELL AS COMPARABLES FROM THE OPERATING INC OME. THIS GROUND OF REVENUE IS DISMISSED. 10.3 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED . 11.0 CROSS OBJECTIONS NO.58/MDS/2014 THE ASSESSEE FILED CROSS OBJECTIONS AND RAISED THE FOLLOWING GROUNDS: 1. THE TRANSFER PRICING OFFICER (TPO) ERRED IN MAKING AN UPWARD ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTION 1.1 THE DRP/TPO ERRED IN NOT PROVIDING ANY ADJUSTMENT TO THE ARMS LENGTH MARGIN OF THE COMPARABLES ON ACCOUNT OF DIFFERENCES IN WORKING CA PITAL. 1.2 THE DRP/TPO OUGHT TO HAVE CONSIDERED ADJUSTMENTS FOR DIFFERENCE IN CAPACITY UTILIZATION WHILE CALCULATING THE OPERATING MARGIN OF THE RESPONDENT SINCE THE COMPANY IS IN THE INITIAL YEARS OF OPERATIONS AND ITS ENTIR E CAPACITY COULD NOT BE UTILIZED FULLY. 1.3 THE DRP ERRED IN CONFIRMING THE ACTION OF THE TPO IN SELECTING AMTEK RING LIMITED AS A COMPARABLE COMPANY WITHOUT APPRECIATING THAT THE SA ID DIFFERENT FINANCIAL YEAR ENDING FROM THAT OF THE RESPONDENT. 1.4 THE DISPUTE RESOLUTION PANEL (DRP) ERRED IN CONFIRM ING THE ORDER OF THE TPO IN HOLDING THAT RPT FILTER SHOULD BE APPLIED AT THE RATE OF 25 PER CENT INSTEAD OF 33 PER CENT. 1.5 THE DRP ERRED IN CONFIRMING THE ACTION OF THE TPO IN NOT CONSIDERING THE FRESH SET OF COMPARABLE COMPANIES SUBMITTED BY THE RESPONDENT FO R BENCHMARKING ANALYSIS. 1.6 THE DRP ERRED IN CONFIRMING THE ORDER OF THE TPO IN EXCLUDING INTEREST EXPENDITURE WHILE COMPUTING THE PLI OF COMPARABLE COMPANIES. 2. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND, S UBSTITUTE, RESCIND, MODIFY AND/OR WITHDRAW IN ANY MANNER WHATSOEVER ALL OR ANY OF THE FOREGOING GROUNDS AT OR BEFORE THE HEARING OF THE APPEAL. ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 15 -: 12.0 GROUND NOS.1 & 2 ARE GENERAL IN NATURE WHICH DO NO T REQUIRE SPECIFIC ADJUDICATION. 13.0 GROUND NO.1.1 IS RELATED TO THE WORKING CAPITAL AD JUSTMENT. THE ASSESSEE HAS REQUESTED FOR WORKING CAPITAL ADJUSTME NT. THE DRP HAS REJECTED THE ASSESSEES OBJECTION FOR ALLOWING THE WORKING CAPITAL ADJUSTMENT, SINCE THE ASSESSEE HAS NOT BROUGHT ON R ECORD ANY EVIDENCE TO SHOW THAT THE ASSESSEE IS PURCHASING FROM AE AND TH E AE HAS ALLOWED THE ASSESSEE EXTRAORDINARY CREDIT PERIOD. DURING THE APPEAL, THE ASSESSEE HAS FILED ADDITIONAL EVIDENCE BEFORE US IN THE PAPE R BOOK. HOWEVER, THE ASSESSEE HAS NOT FURNISHED THE PRICING MODEL AND RE ASONS FOR EXTENDING EXTRAORDINARY CREDIT TO ITS CLIENTS. SIMILARLY THE ASSESSEE DID NOT FURNISH THE PRICING MODELS OF THE COMPARABLE COMPANIES AS W ELL AS THE AE. THE TERMS AND CONDITIONS OF SALE AND INTEREST CLAUSE IF ANY REQUIRE VERIFICATION. THE ASSESSEE RELIED ON THE DECISIONS OF ITAT, BANGA LORE BENCH IN THE CASE OF APIGEE TECHNOLOGIES (INDIA) (P) LTD. (63 TAXMANN 129) AND QUALCOMM INDIA PVT. LTD(ITA NO.5329/DEL/2010), DELHI WHEREIN THE COORDINATE BENCHES HAVE ALLOWED THE WORKING CAPITAL ADJUSTMENT S. HOWEVER, THE ISSUE OF WORKING CAPITAL ADJUSTMENT REQUIRES VERIFI CATION OF FACTS FROM THE ASSESSMENT RECORDS OF THE ASSESSEE AND THE DATA OF COMPARABLES COMPANIES IN THE LIGHT OF DISCUSSION MADE ABOVE. TH EREFORE, WE REMIT THE MATTER BACK TO THE FILE OF THE AO TO EXAMINE THE AS SESSEES CLAIM OF WORKING CAPITAL ADJUSTMENT ON FACTS AND MAKE APPROP RIATE ADJUSTMENT ON ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 16 -: FACTS AND MERITS. IT IS NEEDLESS TO SAY THAT THE AS SESSING OFFICER SHOULD GIVE OPPORTUNITY TO THE ASSESSEE TO PRESENT THE CAS E. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 14.0 GROUND NO.1.2 IS RELATED TO ADJUSTMENT FOR IDLE CA PACITY UTILIZATION. THIS IS THE GROUND RAISED BY THE ASSESSEE BEFORE T HE DRP AND THE DRP HAS REJECTED THE ASSESSEES OBJECTIONS STATING THAT THE CLAIM HAS BEEN MADE WITHOUT ANY ACTUAL COMPUTATION AND NO CASE HAS BEEN MADE OUT FOR CAPACITY UTILIZATION. THE ASSESSEE FILED ADDITIONA L EVIDENCE BEFORE US AND ARGUED THAT THE AY 2009-10 WAS FIRST FULL YEAR OF O PERATION AND REQUESTED FOR CAPACITY UTILIZATION. THE ASSESSEE ALSO FURNIS HED THE DETAILS OF CAPACITY UTILIZATION OF ADJUSTMENT AND RELIED ON THE DECISIO N IN THE CASE OF MANDO INDIA STEERING SYSTEMS PVT. LTD., (IN ITA NO.2092/M DS/2012). ON THE OTHER HAND, THE LD.DR RELIED ON THE ORDER OF THE LD .DRP. 14.1 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF INST ALLED CAPACITY AND CAPACITY UTILIZED AND THE REASONS FOR NON-UTILIZATI ON OF THE INSTALLED CAPACITY AND RESOURCES AVAILABLE AND UTILIZED BY TH E ASSESSEE. SIMILARLY, THE ASSESSEE HAS ALSO NOT FURNISHED THE DETAILS OF THE COMPARABLE COMPANIES INSTALLED CAPACITY AND UTILIZED CAPACITY AND THE LEVELS OF BREAK EVEN. IN THE ABSENCE OF REASONS FOR NON-UTILIZATIO N OF INSTALLED CAPACITY ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 17 -: THE CLAIM FOR CAPACITY ADJUSTMENT IS UNFOUNDED. THE ASSESSEE CLAIMED TO BE IN THE SECOND YEAR OF OPERATION BUT FURNISHED TH E DETAILS IN RESPECT OF SALES TO FIXED COSTS WHICH IS INSUFFICIENT INFORMA TION TO DECIDE WHETHER INSTALLED CAPACITY WAS DUE TO START UPS OR NOT. TH E ASSESSEE DID NOT EXPLAIN THE REASONS FOR NON-UTILIZATION OF OPTIMUM CAPACITY AND THEREFORE, THIS OBJECTION OF THE ASSESSEE CANNOT BE ACCEPTED A ND THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/S.MANDO INDIA ST EERING SYSTEMS PVT. LTD., (CITED SUPRA) IS NOT APPLICABLE AND THIS GROU ND IS DISMISSED . 15.0 GROUND NO.1.3 IS RELATED TO SELECTION OF ARMTEK LTD AS COMPARABLE. THE LD.AR OF THE ASSESSEE OBJECTED BEFORE THE DRP FOR SELECTION OF M/S.AMTEK RING GEARS LTD. WHICH FOLLOWS THE FY JUNE , 2008 TO JUNE, 2009. THE DRP REJECTED THE OBJECTIONS OF THE ASSESSEE SIN CE EFFECTIVELY NINE MONTHS WERE COVERED IN THE ACCOUNTING PERIOD. THE LD.AR ARGUED THAT THE ASSESSEE FOLLOWS THE ACCOUNTING PERIOD APRIL TO MAR CH AND ALL OTHER COMPARABLE COMPANIES ALSO FOLLOW THE SAME FINANCIAL YEAR. THEREFORE, HE CONTENDED THAT M/S.AMTEK RING GEARS LTD., SHOULD BE EXCLUDED FROM THE COMPARABLES. THE LD.AR RELIED ON THE FOLLOWING DEC ISION: I. HONEYWELL AUTOMATION INDIA LTD. (ITA NO.4/PN/08) II. HEWLETT PACKARD (INDIA) GLOBALSOFT (P) LTD. (63 TAX MANN 136) ON THE OTHER HAND, THE LD.AR RELIED ON THE LOWER A UTHORITIES ORDERS. 15.1 WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 18 -: THE CO-ORDINATE BENCH IN THE CASE OF HEWLETT-PACKA RD (INDIA) GLOBALSOFT (P) LTD., IN PARA NO.27 HELD AS UNDER: 26. NOW TAKING UP THE QUESTION OF EXCLUSION OF FLE XTRONICS SOFTWARE SYSTEMS LTD (SEG), IT IS TRUE THAT THE DECISION OF MOTOROLA SOLUTIONS (IN DIA) P. LTD (SUPRA) ALSO WAS FOR THE VERY SAME YEAR AND ALSO ON SOFTWARE DEVELOPMENT SERVICES SECTOR. THIS TRIBUNAL HELD AS UNDER: 97.2 FOR A COMPANY TO BE INCLUDED IN THE LIST OF C OMPARABLES, IT IS NECESSARY THAT CREDIBLE INFORMATION IS AVAILABLE ABOUT THE COMPANY . UNLESS THIS BASIC REQUIREMENT IS FULFILLED, THE COMPANY CANNOT BE TAKEN AS A COMP ARABLE. IT IS TRUE THAT LD.TPO IS ENTITLED TO OBTAIN INFORMATION U/S.133(6), THE OBJE CT OF WHICH IS PRIMARILY ONLY TO SUPPLEMENT THE INFORMATION ALREADY AVAILABLE ON REC ORD, BUT NOT, AS RIGHTLY SUBMITTED BY LD.COUNSEL FOR THE ASSESSEE, TO REPLAC E THE INFORMATION. IF THERE IS A COMPLETE CONTRADICTION BETWEEN THE INFORMATION OBTA INED U/S.133(6) AND ANNUAL REPORT THEN THE SAID INFORMATION CANNOT BE SUBSTITU TED FOR THE INFORMATION CONTAINED IN ANNUAL REPORT. WE, THEREFORE, ARE IN I TA NO.5637/D/2011 149 AGREEMENT WITH LD.COUNSEL FOR THE ASSESSEE THAT THI S COMPANY CANNOT BE INCLUDED AS A COMPARABLE IN THE SET OF COMPARABLES SELECTED BY LD.TPO ON ACCOUNT OF CLEAR CONTRADICTION BETWEEN CONTENTS OF ANNUAL REPORT AND INFORMATION OBTAINED U/S.133(6). 27. RULE 10D(3) SPECIFIES THE INFORMATION AND DOCUM ENTS THAT ARE TO BE MAINTAINED BY A PERSON WHO IS ENTERING INTO INTERNATIONAL TRAN SACTIONS. THESE ARE OFFICIAL PUBLICATIONS, PUBLISHED ACCOUNTS OR THOSE WHICH ARE IN PUBLIC DOMAIN EXCEPT FOR AGREEMENTS AND CONTRACTS TO WHICH ASSESSEE IS PRIVY . ONCE THE ANNUAL REPORT OF A COMPANY IS FOR A YEAR DIFFERENT FROM THE FINANCIAL YEAR ENDING 31ST MARCH, THEN WITHOUT DOUBT, IT WILL CEASE TO BE A GOOD COMPARABL E, UNLESS THE INFORMATION RECEIVED IN PURSUANCE TO A NOTICE U/S.133(6) OF THE ACT FROM SUCH COMPANY, IS RECONCILED WITH THE FIGURES AVAILABLE IN SUCH ANNUA L REPORT. IN THE INSTANT CASE, THE ASSESSEE IS FOLLOWI NG ACCOUNTING YEAR FROM APRIL TO MARCH AND THE COMPARABLE COMPANY M/S.AMTEK RING GEARS LTD., IS FOLLOWING JUNE, 2008 TO JUNE, 2009. ONCE, THE COMP ANY IS FOLLOWING A DIFFERENT ACCOUNTING YEAR, THERE WILL BE A WIDE RAN GE EFFECTS IN THE OPERATING RESULTS AND THE COMPANY SEIZED TO BE A G OOD COMPARABLE. THE AO HAS NOT RECONCILED THE FINANCIALS OF THE COMPARA BLE COMPANY TO THE CORRESPONDING PERIOD OF THE TESTED PARTY BY COLLECT ING NECESSARY INFORMATION AND RE-CASTED THE FINANCIALS. THEREFOR E, FOLLOWING THE DECISION, IN THE CASE OF M/S.HEWLETT PACKARD (INDIA ) GLOBALSOFT (P) LTD., ITAT BANGALORE BENCH WE DIRECT THE AO TO EXCLUDE TH E M/S.AMTEK RING ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 19 -: GEARS LTD., AS COMPARABLE. THIS GROUND OF CROSS-OB JECTION OF THE ASSESSEE IS ALLOWED. 16.0 GROUND NO.1.4 IS RELATING TO RPT FILTER. THE TPO HAS APPLIED THE RPT FILTER OF 25% AND THE ASSESSEE OBJECTED FOR RESTRICTING IT TO 25%. THE DRP HAS RE JECTED THE ASSESSEES OBJECTION ON THE GROUND THAT THE 25% HAS BECOME MOR E OR LESS ACCEPTABLE AND IT GETS SUPPORT FROM THE FACT THAT 26% IS A THRESHOLD LIMIT FOR TREATING THE COMPANY AS AE U/S.92A. SIMILARLY, SEC.40A(2)(B ) TREATS 20% AS THE THRESHOLD LIMIT FOR HAVING SUBSTANTIAL INTEREST IN THE COMPANY. THEREFORE, THE DRP HELD THE APPLICATION OF 25% IS REASONABLE. NO ARGUMENT HAS BEEN MADE BY THE ASSESSEE ON THIS GROUND AND WE CONSIDER THAT AS PER THE REASONING GIVEN BY THE DRP FOR APPLICATION OF 25% , APPLICATION OF RPT APPEARS TO BE REASONABLE AND THIS GROUND IS DISMISS ED. 17.0 GROUND NO.1.5 RELATES TO NOT CONSIDERING THE FRESH SET OF COMPARABLES SUBMITTED BY THE ASSESSEE FOR BENCH MAR KING THE MARGINS. THE DRP HAS REJECTED THE OBJECTION OF THE ASSESSEE STATING THAT THE ADDITIONAL SET OF COMPANIES WERE NOTHING BUT CHERRY PICKED BY THE LD.AR WITHOUT PROPER OBJECTIVES AND ANALYSIS. DURING THE APPEAL HEARING, THE LD.AR DID NOT PLACE ANY ADDITIONAL INFORMATION EXCE PT REITERATING THE SUBMISSIONS MADE BEFORE THE DRP. THE LD.AR HAS NOT PLACED TP ANALYSIS ITA NO.1037/MDS/2014 & CO NO.58/MDS/2014 :- 20 -: AND THE FAR ANALYSIS AND THE FINANCIALS OF THE ADDI TIONAL COMPARABLES BEFORE THE TRIBUNAL. THEREFORE, WE UPHOLD THE DIRE CTIONS OF THE DRP AND THIS GROUND OF THE APPEAL IS DISMISSED. 18.0 GROUND NO.1.6 IS EXCLUSION OF INTEREST EXPENDITURE WHILE COMPUTING THE PLI OF COMPARABLE COMPANIES. NO ARGUMENT HAS B EEN RAISED BY THE LD.AR AND THIS GROUND IS DISMISSED. 18.1 IN THE RESULT, CROSS-OBJECTIONS OF THE ASSESSEE AR E PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . # $!% ) (D.S.SUNDER SINGH) ' /ACCOUNTANT MEMBER /CHENNAI, 5! /DATED: 22 ND FEBRUARY, 2017. TLN 0 .2$6 76+2 /COPY TO: 1. ,- /APPELLANT 4. # 82 /CIT 2. ./,- /RESPONDENT 5. 6 9 .2 /DR 3. # 82 ( ) /CIT(A) 6. * < /GF
