DCIT, Circle-2(3), Hyderabad V. M/s. Taiko Chandernagar Chemicals Private Limited, Secunderabad

ITA 102/HYD/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8946 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.102/HYD/20 14 (ASSESSMENT YEARS 200 9 - 1 0 ) DY. COMMISSIONER OF INCOME - TAX CIRCLE 2(3), HYDERABAD V/S. M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD (PAN AAACT 3663 R ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.SUDHAKAR RAO DR RESPONDENT BY : SHRI P.V.S.S.PRASAD DATE OF HEARING 18.02.2015 DATE OF PRONOUNCEMENT 11.03.2015 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED DY. COMMISSIONER OF INCOME - TAX, CIRCLE 2( 3), HYDERABAD (ASSESSING OFFICER ) DATED 31.1.2014 PASSED UNDER S.143(3) READ WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL(DRP) UNDER S.144C OF THE ACT. 2. THE SOLITARY ISSUE RAISED BY THE REVENUE IN THIS APPEAL IS THAT THE LEARNED DRP HAS ERRED IN EXCLUDING M/S. ASHAPURA CLAY TECH LTD. FROM THE LIST OF COMPARABLES FOR THE PURPOSES OF TRANSFER PRICING ANALYSIS, IN ORDER TO DETERMINE THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AE WHICH RESULTED IN THE DELETION OF TRANSFER PRICING ADJUSTMENT OF RS.2,55,49, 8 52 WORKED OUT BY THE TPO. I TA NO. 102/HYD/2014 M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD 2 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS A SUBSIDIARY OF PREMIER BLEACHING EARTH SDN BHD. MALAYSIA. THE SAID HOL D ING COMPANY HOLDS 60% OF THE SHARE CAPITAL OF THE ASSESSEE COMPANY WITH TH E R E M A ININ G 40% BEIN G HELD BY TALCO CHEMICALS I NDUSTRIES PTE. LTD., SINGAPORE. THE ASSESSEE COMPA N Y IS ENGAGED IN TR A DING OF B ETONITE/ F ULLERS E ARTH L UMPS AND ALSO CARR I E S OUT MINOR PROCESSING INVOLVING QUALITY CHECK AND MOISTURE CONTROL B E FORE EXPORTING IT TO ITS AE. THE RETURN OF IN C OM E FOR THE YEAR UN D ER CON S IDERA T ION WAS FIL E D BY IT ON 30.9.2009, DECLARING A T O TAL INCOME OF R S .1,90,95,412. D URIN G THE COURSE OF ASSESSMENT PROCEE D IN G S, I T WAS NO T I C ED BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTION S WITH ITS ASSOCIATED ENTERPRISES - ( A ) SALE OF RAW MATERIALS RS.19,26,09,329 ( B ) REIMBURSEMENT OF EXPENSES RS. 5,25,722 ( C ) RECOVERY OF EXPENSE RS. 24,64,094 IN ORD E R TO DETERMINE THE ARMS LENGTH PRICE (ALP) OF THE ABOVE INTERNATIONAL TRAN S AC T IONS, A REFERENCE WAS MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OF FICER ( TPO) UN D ER S .92CA(1) OF THE A C T. IN THE TP STUDY REPORT SUB M I T TED BY THE ASSESSEE, TP ANALYSIS WAS DONE BY APPLYING TRANSACTION AL N ET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD AND T AKING THE O P E RATIN G PROFIT TO OPERATING COST ( OP/OC) AS PRICE LEVEL INDICATOR (PLI) . I N THE SAID REPORT , FIVE COMPARABLES W E RE SELECTED BY THE ASSESSEE BY APPLYING CERT A IN FILT E RS AND SIN C E THE A R ITHM E TIC MEAN OF OP/OC OF THE SAID FIVE COMPARABLES AT 11.52% WAS WITHIN THE RANGE OF +/ - 5% OF ITS OWN OP/ OC OF 10.53% IN R E L A TION TO TH E IN TE RN A TIONAL TR A NSACTION S WITH AE, THE PRICE CHARGED TO THE AE IN RESPECT OF TH E SE TR A N S AC T ION S WAS CLAIMED BY TH E ASSESSEE AS AT ARMS LENG T H. I TA NO. 102/HYD/2014 M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD 3 4. AFTER GOING THROUGH THE R E LEVANT DOCUM E N T S MAINTAINED BY TH E ASSESSEE AND AFTER ANLAYSING THE RELEVANT TR A N S AC TI ON S , THE TPO WAS OF THE OPINION THAT THE M E TH O D ADOPTED BY TH E ASSESSEE FOR SEL E CTING THE CO M P A RABLE S SUFFERED FROM C E RTAIN DEFECTS AND THE SAME, TH E R E FORE, HAD RESULTED IN SELECTION OF INAPPROPRIATE COMPARABLES. HE , TH E R EF ORE, PROCEEDED TO CON D U C T A NEW SEARCH FOR SELECTING THE APPROPRI A TE COMPARABLES AND SELECTED FOUR CO M PAR A B L ES, NAMELY, (1) M/S. ASHAPURA CLAYTECH L TD; (2) M/S. ASHAPURA INTERNATIONAL L TD., (3) M/S. BOMBAY MINERA L S LTD. AND (4) M/S. COCHIN MINERALS LTD.. OUT OF THESE FOUR COMPARAB LES SELECTED BY TH E TPO, THR E E COMPARABLES, VIZ. M/S. ASHAPURA IN T ERNATIONAL L TD., M/S. BOMBAY MINERALS L TD. AND M/S. COCHIN MINERALS LTD. WERE ALREADY THERE IN THE LIST OF COMPARABLES SEL E CTED BY TH E ASSESSEE IN ITS TP STUDY REPORT. THE INCLUSION OF THE NEW COMPARABLE, M/S. ASHAPURA CLAYTECH LTD. BY TH E TPO WAS OBJECTED BY THE ASSESSEE BY SUBMITTING THAT THE SAID ENTITY WA S ENGAGED IN DIFFERENT MANUFACTURING ACTIVITY WHER E AS THE ASSESSEE IS INTO TRADING ACTIVITY. IT WAS CONTENDED THAT THE SAID ENTITY WA S TH US FUNCTIONALLY D IFFERENT AND C OULD NOT B E TAKEN AS COMPARABLE. IN THIS REGARD, IT WAS ALSO POINTED OUT THAT THE VALUE OF PLANT AND MACHINERY OF THE SAID ENTITY AS ON 31.3.2009 WAS RS. 2.04 C RORES OUT O F THE TO T AL VALUE O F FIXED ASSETS OF R S .5.86 CRORES, WHEREAS THE ASSESSEE COMPANY WAS HAVING ONLY COMPUTERS AND TESTING EQUIPMENT AND NOT ANY PLANT AND MACHINERY AS SUCH. IT WAS ALSO SUBMI T TED BY THE ASSESSEE THAT M /S. ASHAPURA CLAYTECH LTD. HAVING OP / O C OF 48.72 % , WAS ABNORMAL/SUPER PROFIT MAKING COMPANY A ND THE SAME C OULD NOT B E TAKEN AS COMPARABLE ON THIS GROUND ALSO. 5. THE TRANSFER PRICING OFFICER DID NOT FIND MERIT IN THE OBJECTIONS RAISED BY THE ASSESSEE T O THE INCLUSION OF M/S. ASHAPURA CLAYTECH L TD. ACCOR D ING TO HIM, BENTONITE WAS A NATURAL PROD UCT ON I TA NO. 102/HYD/2014 M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD 4 WHICH ONLY PROCESSING WAS REQUIRED TO BE DONE TO BE MADE USEFUL IN FINAL CONSUMPTION. HE OBSERVED THAT I T IS NOT A MANUFACTUR ED PRODUCT AND EVEN THE ASSESSEE CARRIED OUT MINOR PROCESSING WHICH INCLUDED REMOVING OF IMPURITIES AND MOISTURE, MAKING LU MPS OF SPECIFIED SIZES, DRYING, STORING ETC., BEFORE SELLING IT. HE ALSO NOTED THAT THE VALUE OF PLANT AND MACHINERY OF THE ASSESSEE COMPANY WAS 17.40% OUT OF ITS TOTAL ASSETS. HE HELD THAT M/S. ASHAPURA CLAYTECH L TD. THUS WAS NOT FUNCTIONALLY DIFFER E N T FROM THE ASSESSEE COMPANY AND THE OBJ E CTION RAISED BY TH E ASSESSEE IN THI S RE G ARD WAS NOT SUSTAINABLE. HE ALSO OVERRULED THE OBJ EC TION OF THE ASSESSEE THAT M/S. ASHAPURA CLAYTECH L TD. BEIN G ABNORMAL/SUPER PROFIT MAKING COMPANY, C OULD NOT BE TAKEN AS COMPARABLE, RELYING INTER ALIA ON THE DECISION OF THE MUMBAI BENCH OF ITAT IN THE CA S E OF EXXON MOBIL COM.INDIA PVT. LTD. IN ITA NO.8311/MUM/2010 . A CCORDINGLY TAKING THE ARITHMETIC MEAN OF OP/OC OF 23.90 % OF THE FOUR COMPARABLES SELECTED BY HIM AS ARITHM ETIC MEAN MARGIN AND APPLYING THE SAME TO THE CORRESPONDING OPERATING COSTS (INCLUDING REIMBURSEMENT OF EXPENSES) OF RS.17,87,16,588, THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AE WAS WORKED OUT BY THE TPO AT RS.22,14,29,852 AS AGAINS T TH E P RICE OF RS.19,58,79,890 CHARGED BY THE ASSESSEE. THE DIFFERENCE OF RS.2,55,49,952 THUS WAS WORKED OUT BY THE TPO AS TP ADJUSTMENT THAT IS REQUIRED TO BE MADE IN RESPECT OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AE. 6 . WH EN THE ADDITION ON ACCOUNT OF TP ADJUSTMENT WORKED OUT BY THE TPO WAS PROPOSED TO BE MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSEE IN THE DRAFT ASSESSMENT, O BJECTIONS WERE FILED BY THE ASSESSEE, BEFORE THE DISPUTE RESOLUTIO N PANEL WHICH MAINLY INCLUDED THE OBJECTION OF THE ASSESSEE FOR INCLUSION OF THE M/S. ASHAPURA CLAYTECH LTD. AS COMPARABLE. I TA NO. 102/HYD/2014 M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD 5 7 . IN SUPPORT OF ITS CLAIM FOR EXCLUSION OF M/S. ASHAPURA CLAYTECH LTD. FROM THE LIST OF FINAL COMP A RABLES, THE FOLLO W IN G SUBMI S SIO N S WERE MADE ON BE HALF OF THE ASSESSEE B E FORE THE DISPUTE RESOLUTION PANEL. (I) THE COMPANY IS INTO TRADING ACTIVITY ONLY. THERE IS NO MANUFACTURING ACTIVITY INVOLVED. THE FIXED ASSETS COMPRISES ONLY OF COMPUTERS AND LAB TESTING EQUIPMENT USED TO TEST THE MATERIALS PURCHASED. THERE IS NO PLANT & MACHINERY IN OUR FIXED ASSETS. FROM THIS IT IS OBVIOUS THAT WE ARE NOT INTO MANUFACTURING ACTIVITY OF ANY KIND. THE TPO IN HIS ORDER HAS OBSERVED THAT THE TAX PAYER HAS ALSO 17.40% PLANT & MACHINERY OUT OF THE TOTAL ASSETS. THIS IS HOWEVER INCORRECT. THERE IS NO PLANT & MACHINERY IN THE FIXED ASSETS. (II) ASHAPURA CLAYTECH LTD IS INTO PRODUCTION OF BENTONITE GRANULES AND HAS PRODUCED 9924 MT OUT OF TOTAL PRODUCTION OF 13524 MT OF ALL PRODUCTS. HENCE EVEN THOUGH IT IS INTO PRIMARILY INTO ACTIVITIES OF BENTONITE IT IS INTO PRODUCTION /MANUFACTURING ACTIVITY AS AGAINST TRADING ACTIVITY CONDUCTED BY THE COMPANY. FROM THE WEBSITE OF ASHAPURA CLAYTECGH LTD, IT IS EVIDENT THAT TH EY ARE INTO MANUFACTURING ACTIVITY ONLY. (III) THE ASSESSEE HAS RELIED ON THE DECISIONS IN THE CASES OF GLENMARK EXPORTS LTD VS ACIT MU M BAI I.T . A. NO.8611/MUM/2011, DEPUTY COMMISSIONER OF INCOME - TAX V. QUARK SYSTEMS (P.) LTD ITAT CHANDIGARH BENCH (SPECIAL BENCH) [2010 ] 38 SOT 307 (CHD.)(SB) AND TEUA INDIA PUT LTD V S DCIT MUMBAI ITA NO. 6107/MUM/2 00 9. IT IS SUBMITTED THAT HIGH /ABNORMAL PROFIT COMPANIES SHOULD BE REJECTED HAS BEEN ENDORSED IN SEVERAL JUDICIAL PRONOUNCEMENTS, AS THEY HAVE A TENDENCY TO SKEW THE RESULTS AND CANNOT BE CONSIDERED AS REPRESENTATIVE OF THE INDUSTRY BASED ON THE FOLLOWING CASE LAWS - CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD VS DCIT (2013) 32 TAXMANN.COM 21 (HYD - TRIB) ....... SAP LABS INDIA PVT LTD VS. ACIT BANQALORE / 2011 44 SOT 156 BANGALORE TEVA INDIA (P) LTD (2011) 44 SOT 105 (MUM) (URD) ADOBE SYSTEMS INDIA PUT LTD VS ACIT 44 SOT 49 (DELHI) (URO) SAUNAY JEWELS (P) LTD VS ITO (2010) 42 SOT 4 (MUM.) (URO) SAPIENT CORPORATION (P) LTD (2011) 46 SOT 56 (DELHI) (URO) I TA NO. 102/HYD/2014 M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD 6 TO SUM UP ASHAPURA CLAYTECH LTD HAS TO BE REJECTED BOTH ON GROUNDS OF FUNCTIONAL DIFFERENCE AND BEING A HIGH PROFIT COMPANY. 8. THE DISPUTE RESOLUTION PANEL FOUND MERIT IN TH E ABOVE SUBMI S SION S MADE ON BEHALF OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO E X CLUDE M/S. ASHAPURA CLAYTECH LTD. FROM THE LI S T OF COMPARABLES FOR THE PU R PO S E OF COMPUTING THE ALP OF THE IN T ERNATIONAL TRANSACTION S OF THE ASSESSEE COMPANY WITH ITS AE BY OBSERVING AS UNDER - 9 WE HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. THE ISSUE IN DISPUTE IS REGARDING INCLUSION OF ASHAPURA CLAYTECH LIMITED AS ONE OF THE COMPARABLES. THE ASSESSEE HAS NOT CONTROVERTED REJECTION OF TWO OF ITS COMPARABLES NEITHER THE METHOD APPLIED OR CHO ICE OF PLI. THE OBJECTION IS RESTRICTED TO MOSTLY INCLUSION OF ASHAPURA CLAYTECH LIMITED. ON GOING THROUGH THE DETAILED SUBMISSION OF THE ASSESSEE AS MENTIONED IN EARLIER PARAGRAPH, WE FIND THAT THE FOLLOWING COMPARABLES WERE SELECTED BY TPO WHILE ARRIV ING AT ALP PRICE AS UNDER: SL. NO. NAME OF THE ASSESSEE OR OC OP OP/OR OP/OC 1. ASHAPURA CLAYTECH LTD. 6.38 4.29 2.09 32.76 48.72 2. ASHAPURA INTERNATIONAL LTD 46.55 42.12 4.43 9.52 10.52 3. BOMBAY MINERALS LTD. 55.75 45.34 10.41 18.67 22.96 4. COCHIN MINERALS LTD. 12.36 107.9 14.46 11.82 13.4 ARITHMETIC MEAN 18.19 23.9 ON ANALYSIS OF FINANCIAL RESULTS OF ASHAPURA CLAYTECH LTD, IT IS CLEAR THAT THIS COMPANY CANNOT BE TAKEN AS COMPARABLE ON THE FOLL O W I N G GROUNDS. A ) FINANCIAL COMPARABILITY B) PRODUCT COMPARABILITY C) ECONOMIC COMPARABILITY I TA NO. 102/HYD/2014 M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD 7 10. THE ASSESSEES CLAIM , IS SUPPORTED BY NUMBER OF DECISIONS INCLUDING DECISION OF CAPITAL IQ INFORAMTION SYSTEMS (INDIA)(P)LTD. VS. . DCIT, ITAT, HYD ERABA D . WE ARE OF TH E VIEW TH A T THE A O IS NOT JUSTI F IED IN INCLUDING ASHAPURA CLAYTECH LTD. AS COMPARABLE. ACCOR D INGLY, WE DIRECT THE TPO TO COMPU T E ALP E X CLUDING ASHAPURA CLAYT E CH LTD. AG G RIEVED BY THE DIRECTION ISSUED BY THE D RP UN D ER S.144C(5 ) OF THE ACT IN PURSUANCE OF W HICH THE ASSESSING OFFICER HAS PASSED THE IM PUGNED ORDER UN D ER S.143(3), THE DEPARTMENT HAS PREFERRED THIS APPEAL B E FORE THE TRIBUNAL. 9 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT A BN OR MAL PROFIT CANNOT B E TAKEN AS THE B A SIS FOR THE EXCLUSION OF AN ENTITY FROM THE LI S T O F FINAL COMP A RABL E S AND THE DISPUTE RESOLUTION PANEL , TH E R E FORE, WAS NO T CORRECT IN DIR E CTING THE EXCLUSION OF M/S. ASHAPURA CLAYTECH LTD. FROM THE LIST OF FINAL COMPARABLES HOLDING THAT THE SAME WAS NO T FINANCIALLY AN D ECONOMICALLY COMP A RABLE WITH THE ASSESSEE COMPANY DU E TO HIGH/ABNORMAL PROFIT. A S REGA R DS THE PR O DU C T/FUN C TIONAL COMPARABILITY , TH E LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE PRODUCT OF M/S ASHAPURA CLAYTECH LTD. IS SIMILAR TO THAT OF TH E AS SESSEE C OMPANY AND EVEN TH E A CTIVITY CARRIED ON BY TH E SE TWO ENTITIES IS ALSO ALMOST SIMILAR. HE SUBMITTED T H A T THIS ASPECT WAS ELABO RA TELY DEALT WITH BY THE TRANSFER PRICING OFFICER IN HIS ORDER, WHILE REJECTING THE CLAIM OF TH E ASSESSEE FOR EXCLUSION OF M/S ASHAPURA CLAYTECH LTD. FROM THE LI S T OF COMPARABLES ON TH E GROUND OF PRODUCT/FUNCTIONAL DIFFERENCES. HE CONTENDED THAT T H E O B S ERV A TION S /FIN D IN G S RECORDED BY THE TRANSFER PRICING OFFICER IN THIS RE G ARD HAVE NO T B E EN P R O P ERLY A PP RE CIATED BY THE DISPUTE RESOLUTION PANEL, W H ILE DIRECTING THE E X CLU S ION OF M/S ASHAPURA CLAYTECH LTD. FROM TH E LI S T OF CO MPA R A BLES ON TH E G R OUN D OF DIFFEREN CE IN PRODUCT/FUNCTIONS. I TA NO. 102/HYD/2014 M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD 8 10 . THE LEARNED COUNSEL FOR THE ASSESSEE , ON THE OTHER HAND , TOOK US THR OUGH THE PROFIL E OF THE ASSESSEE COMPANY AS WELL AS THAT OF M/S ASHAPURA CLAYTECH LTD. PLACED IN HIS PAPER - BOOK TO EXPLAIN THAT NOT ONLY THE PRODUCTS OF THE TWO COMPANIES ARE DIFFERENT, BU T EVEN THE FUNCTIONS PER F ORMED BY TH E M ARE ENTIRELY DIFFERENT. HE SU BMITTED THA T THE PRODUCT , VIZ. GREY B ENTONITE C LAY/ F ULLERS E ARTH L UMP , I S PU R CHA S ED BY THE ASSESSEE FROM THE MINE OWNERS AND THE SAME I S SOLD IN THE SAME FORM, AFTER REMOVING IMPURITIES AND MOISTURE AND MAKING LUMPS OF SPECIFIED SIZES AFTER DRYING. HE CONTENDED THAT NO MAJOR PROCESS THUS I S CARRIED ON BY TH E ASSESSEE AND THE PRODUCT I S SOLD ALMOST IN THE SAME FORM, WHICH D OES NO T CONSTITUTE ANY MANU FAC TURING. HE CONTENDED THAT THE ASSESSEE THUS I S E N G AGED MERELY IN TH E TRADING OF G REY BENTONITE C LAY/ F ULLERS E ARTH L UMPS WHEREAS M/S ASHAPURA CLAYTECH LTD. I S CON V ERTIN G G REY B ENTONITE C LAY/ F ULLERS E ARTH L UMP INTO B ENTONITE BIO - GREEN GRANULES , AFTER CARRYING OUT DIFFERENT OPERATION S WITH THE HELP O F PLAN T AND MACHINERY. HE CONTENDED THAT T H E SAI D ENTITY THUS I S CLEARLY CAR RYING O U T THE MANUF AC TURING ACTIVITY, AND THIS FACT I S EVIDENT FR O M THE SUBSTANTIAL VALUE OF PL A N T AND MACHINERY OWNED AND U S ED BY THE SAID ENTITY FOR THE PU R POSE OF ITS OPERATION S . HE SUBMI T TED THAT THE ASSESSEE COMPANY, ON THE OTHER HAND, D OES NO T H A VE ANY PLANT AND MACHINERY E X CEPT SOME COMPUTERS AND TESTING EQUIPMENT, WHICH IS SUFFICIENT TO SHOW THAT IT I S NOT INTO ANY MANUFACTURING ACTIVITY AT ALL. 11 . WE HAVE CONSIDERED THE RIV AL SUBMI S SION S AND PERUSED THE REL E VANT MATE R IAL ON RECOR D . ALTHO U GH WE AGREE WITH THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT M/S . ASHAPURA CLAYTECH LTD. CANNOT BE EXCLUDED FR O M TH E LI S T O F COMPARABLES ONLY ON THE GROUND OF HIGH/ABNORMAL PROFITS, WE FIND ON COMP A RATIVE ANALYSIS O F THE FUNCTIONAL PRO F ILE O F THE SAID I TA NO. 102/HYD/2014 M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD 9 COMPANY THAT THE SAME IS NO T FUNCTIONALLY COMPARABLE WITH THE ASSESSEE COMPANY. IT IS OBSERVED THAT THE ASSESSEE COMPANY IS PU R CH A SING G REY B ENTONITE C LAY /F ULLERS E ARTH L UMP EXTRACTED FR O M THE MINES AND SELLING THE SAME ALMOST IN TH E SAME FORM, AFTER R E MOVING IMPURITIES AND MOISTURE I N SPECIFIED LUMPS OF DIFFERENT SIZES. IT I S ALSO INVOLVED IN MANUAL BR E AKING OF LUMPS USING HAMMER IN ORD E R TO REDUCE THE LUMPS IN TO REQUIRED SI ZES. ALL TH I S MINOR PROC E SSIN G WORK BEING DONE BY THE ASSESSEE DOES NOT CH A NGE THE BASIC NATURE AND CHARACTER OF THE P R O D U C T AND WHAT IS ULTIMATELY SOLD BY TH E ASSESSEE COMPANY REM A IN S TO BE THE SAME COMMERCIAL PRODUCT, VIZ. GREY BENTONITE CLAY/ F ULLER S E AR TH L UMP. 12. O N THE OTHER H A N D , M/S ASHAPURA CLAYTECH LTD. IS USING GREY BENTONITE CLAY/FULLERS EARTH LUMP AS RAW MATERIAL AND AFT E R CARRYING OUT DIFFERENT OPERATION S , SUCH AS CRUSHING , M ILLING , SI E VING, ETC., IT IS PRODUCING BENTONITE /BIO - GREE N GRAN ULES WHICH IS HIGHLY EFFICIENT AND ECONOMIC MATERIAL FOR USE IN AGRICULTURAL PESTICIDES , CATLITTER AND FLO O R ABSORBENTS. ALL ITS OPERATION S TO CONVERT GREY BENTONITE CLAY/FULLERS EARTH LUMP INTO B ENTONITE/BIOGREEN GRANULES ARE CARRIED OUT WITH THE HELP OF DIFFE RE NT MACHINERY AT DIFFE RE NT STAGES AND W HAT I S ULTIMATELY PRO D U C ED, NAMELY BENTONITE / BIOGREEN GRANULES IS A NEW P R O D U C T WHICH IS COMMERCIALLY DIFFERENT FROM THE G RE Y BENTONIT E CLAY/ F ULLERS EARTH LUMP USED AS RAW MATERIAL. TH E ACTIVITIES CARRIED ON B Y THE ASSESSEE COMPANY AS WELL AS THE M/S . ASHAPURA CLAYTECH LTD. THUS CLEARLY SHOW THAT THE ASSESSEE COMPANY I S ENGAGED ONLY IN TRAD ING OF G REY BENTONITE CLAY/FULLERS EARTH LUMP, WH E R E AS M/S ASHAPURA CLAYTECH LTD. IS ENGAG E D IN THE MANU FA CTURING OF BENTONIT E B IOGREEN GRANUL ES , WHERE GREY BENTONITE CLAY/FULLERS EARTH LUMP IS USED AS RAW MATERIAL. KEEPING IN VIEW THIS POSITION, WHICH I S CLEARLY APPARENT FROM TH E FUNCTIONAL PROFILE OF BOTH THE COMPANIES, WE FIND OURSELVES IN AGREEMENT WITH I TA NO. 102/HYD/2014 M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., HYDERABAD 10 THE DISPUTE RESOLUTI ON PANEL THAT THE P R O D UCT/FUNCTION OF M/S . ASHAPURA CLAYTECH LTD. IS NO T SIMILAR WITH THAT OF THE ASSESSEE COMPANY AND THE SAME TH E R E FORE, CANNOT B E TAKEN AS A COMPARABLE FOR THE PU RP OSE OF TP ANALYSIS, IN ORD E R TO DETERMINE THE ALP OF THE IN TE RN A TIONAL TRANS A C T ION S O F TH E ASSESSEE COMPANY WITH ITS AE. IN THI S VIEW O F THE MATTER, WE DO NO T FIND ANY M E RIT IN THIS APPEAL O F THE REVENUE AND ACCORDINGLY DISMISS THE SAME. 13 . IN THE RESULT, REVENUE S APPEAL IS DISMISSED. ORDER PRONOUN CED IN THE COURT ON 11 TH M ARCH, 2015 SD/ - SD/ - ( SAKTIJIT DEY) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 11 TH MARCH, 201 5 COPY FORWARDED TO: 1. M/S. TAIKO CHANDERNAGAR CHEMICALS PVT. LTD., 3 - 16 - 724 ROAD NO.3, SARDAR PATEL COLONY, TRIMULGHERRY, SECUNDRABAD 500 015. 2 . DY. COMMISSIONER OF INCOME - TAX, CIRCLE 2(3) , HYDERABAD 3. 4. DISPUTE RESOLUTION PANEL HYDERABAD DIRECTOR OF INCOME - TAX, INTERNATIONAL TAXATION, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S