DCIT, CIR-12(2), KOLKATA, Kolkata V. M/s Schenck Process India Ltd., Kolkata

ITA 130/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6390 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 29-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SRIHARI
• Assessee Lawyers: PRASUN KUMAR MAITI
• Keywords: Business income; Transfer pricing; International transaction
• Section: 6; 144

Judgement Text

I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER I.T.A. NO. 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 DEPUTY COMMISSIONER OF INCOME TAX,................. ....................APPELLANT CIRCLE-12(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. SCHENCK PROCESS INDIA LIMITED,................ ......................RESPONDENT EN-26, AMRIT TOWER, 6 TH FLOOR, SECTOR-V, SALT LAKE CITY, KOLKATA-700 091 [PAN: AAECS 4728 C] & C.O. NO. 18/KOL/2016 (ARISING OUT OF I.T.A. NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 M/S. SCHENCK PROCESS INDIA LIMITED,................ ......................CROSS OBJECTOR EN-26, AMRIT TOWER, 6 TH FLOOR, SECTOR-V, SALT LAKE CITY, KOLKATA-700 091 [PAN: AAECS 4728 C] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. ....................RESPONDENT CIRCLE-12(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI P.K. SRIHARI, CIT, D.R. FOR THE DEPARTMENT SHRI PRASUN KUMAR MAITI, A.R., FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : MARCH 08, 2018 DATE OF PRONOUNCING THE ORDER : MAY 18, 2018 I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 2 OF 16 O R D E R PER SHRI P.M. JAGTAP, A.M. :- THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF DISPUTE RESOLUTION PANEL-2, NEW DELHI DATED 12.10.2015 PASSED UNDER SECTION 144 C(5) OF THE INCOME TAX ACT, 1961 AND THE SOLITARY COMMON ISSUE INVOLVE D THEREIN RELATES TO THE TRANSFER PRICING ADJUSTMENT. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE MANUFACTURE OF A WIDE RANGE OF EQUIPMENTS USED FOR DYNAMIC WEIGHING, FEEDING AND CONTROLLING FLOW OF SOLD MATE RIALS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 28.11.2011 DECLARING TOTAL INCOME OF RS.15,49,31,766/-. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY HAD ENTERED INT O THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES:- NATURE OF TRANSACTION PAID (RS.) RECEIVED (RS.) SALE OF COMPONENTS 11,456,350 SALE OF SERVICES 1,52,685 PURCHASE OF RAW MATERIAL & COMPONENTS 128,604,847 TRADEMARK/LICENSE FEE 15,572,928 REIMBURSEMENT OF EXPENSES 466,634 SALE OF COMPONENTS 1,009,852 SALE OF SERVICES 113,308 MANAGEMENT FEE FOR ASSISTANCE 21,541,343 RECOVERY OF EXPENSES 2,645,239 PURCHASE OF RAW MATERIAL & COMPONENTS 86,848,553 PURCHASES OF SERVICES 1294,425 REIMBURSEMENT OF EXPENSES 506,144 I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 3 OF 16 PURCHASE OF RAW MATERIAL & COMPONENTS 2,151,542 RECOVERY OF EXPENSES 160,493 RECOVERY OF EXPENSES 188,348 MANAGEMENT FEE FOR ASSISTANCE 1,029,460 PURCHASE OF RAW MATERIAL & COMPONENTS 88,344,217 PURCHASES OF SERVICES 14,935,325 PURCHASE OF RAW MATERIAL & COMPONENTS 24,923,893 PURCHASE OF RAW MATERIAL & COMPONENTS 13,018,379 IN ORDER TO DETERMINE THE ARMS LENGTH PRICE OF THE AFORESAID INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE WITH ITS ASSOCIATED ENTERPRISES, A REFERENCE WAS MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFICER (IN SHORT TPO) UNDER S ECTION 92CA OF THE ACT. IN THE TRANSFER PRICING STUDY REPORT FURNISHED BY T HE ASSESSEE, TNMM WAS ADOPTED AS THE MOST APPROPRIATE METHOD AND OPER ATING PROFIT TO OPERATING REVENUE (OP/SALES) WAS TAKEN AS THE PROFI T LEVEL INDICATOR (PLI). IN THE SAID TPO STUDY REPORT, THE ASSESSEE-C OMPANY WAS TAKEN AS THE TESTED PARTY AND A SET OF FIVE COMPARABLES WAS SELECTED HAVING AN AVERAGE (OP/SALES) OF 6.19%. SINCE THE OP/SALES OF THE ASSESSEE-COMPANY AS WORKED AT 8.41% WAS HIGHER THAN THE AVERAGE OP/S ALES OF THE FIVE COMPARABLES, THE PRICE CHARGED TO THE ASSOCIATED EN TERPRISES IN THE INTERNATIONAL TRANSACTIONS WAS CLAIMED BY THE ASSES SEE-COMPANY TO BE AT ARMS LENGTH. 3. THE COMPARABILITY ANALYSIS MADE IN THE TP STUDY REPORT SUBMITTED BY THE ASSESSEE WAS EXAMINED BY THE TPO AND ON SUCH EXAMINATION, HE FOUND THAT THE ASSESSEE-COMPANY HAD NOT CONSIDERED CURRENT YEAR DATA OF ANY OF THE COMPARABLE COMPANIES AND THE DATA FOR TH E EARLIER TWO FINANCIAL YEARS, I.E. F.Y. 2008-09 AND 2009-10 WAS CONSIDERED. KEEPING IN I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 4 OF 16 VIEW THE SAID DEFECT AS WELL AS THE OTHER DEFECTS P OINTED OUT BY HIM, THE TPO REJECTED THE TRANSFER PRICING STUDY REPORT FURN ISHED BY THE ASSESSEE BY REGARDING IT AS NOT RELIABLE. HE THEN PROCEEDED TO DO THE COMPARABILITY ANALYSIS OF HIS OWN AND BY APPLYING THE VARIOUS FIL TERS AND CRITERIA, SELECTED 35 ENTITIES AS COMPARABLES, WHICH INCIDENT ALLY INCLUDED TWO OF THE FIVE ENTITIES SELECTED AS COMPARABLES IN THE T. P. STUDY REPORT FURNISHED BY THE ASSESSEE. BY RELYING ON THE VARIOU S QUANTITATIVE AND QUALITATIVE CRITERIA, THE ASSESSEE OBJECTED TO THE INCLUSION OF MANY ENTITIES SELECTED BY THE TPO IN THE FINAL SET OF CO MPARABLES. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS MADE BY THE ASSE SSEE IN THIS REGARD, THE TPO FOUND THE OBJECTIONS RAISED BY THE ASSESESE FOR INCLUSION OF SOME OF THE ENTITIES AS COMPARABLES TO BE SUSTAINABLE AN D ACCORDINGLY SELECTED THE FOLLOWING 16 ENTITIES IN THE FINAL LIST OF COMP ARABLES:- SR. NO. NAME OF THE COMPANY OP/SAL ES 1. ACTION CONSTRUCTION EQUIPMENT LIMITED 8.26% 2. ANDHRA PRADESH HEAVY MACHINERY & ENGG. LTD. 15.25% 3. AVERY INDIA LTD. 13.04% 4. BHARAT BIJLEE LTD. 9.91% 5. CTR MANUFACTURING INDUSTRIES LTD. 19.35% 6. ELMCO ELCON (INDIA) LIMITED 13.04% 7. GMM P FAUDLER LTD. 10.71% 8. GREAVES COTTON LTD. 15.25% 9. INTERNATIONAL COMBUSTION (INDIA) LTD. 15.25% 10. INTERNATIONAL CONVEYORS LTD. 10.71% 11. L&T CUTTING TOOLS LTD. 9.91% 12. LINCOLN HELIOS (INDIA) LTD. 27.54% 13. MAZDA LTD. 13.79% 14. OTIS ELEVATOR COMPANY (I) LTD. 13.79% 15. TIL LTD. 15.25% I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 5 OF 16 16. UT LTD. 9.09% 13.76% 4. BY APPLYING AVERAGE OP/SALES OF THE 16 ENTITIES SELECTED BY HIM AS FINAL COMPARABLES, THE TPO DETERMINED THE ARMS LEN GTH PROFIT ON THE TOTAL SALES OF THE ASSESSEE AT RS.19,42,08,820/- AS AGAINST THE PROFIT OF RS.11,86,89,489/- SHOWN BY THE ASSESSEE THEREBY MAK ING A DIFFERENCE OF RS.7,59,19,331/-. SINCE THE VALUE OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IN TOTAL SALES WERE 26.42%, THE AMOUNT OF TRANSFER PRICING ADJUSTMENT ON PROPORTIONATE BASIS WAS WORKED OUT BY THE ASSESSING OFFICER AT RS.1,99,51,702/-. ACCORDINGLY, IN THE DR AFT ASSESSMENT ORDER, ADDITION OF RS.1,99,51,702/- WAS PROPOSED BY THE A SSESSING OFFICER ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 5. THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJU STMENT AS PROPOSED BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT OR DER WAS CHALLENGED BY THE ASSESSEE BY FILING OBJECTIONS BEFORE THE DRP. O NE OF THE OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE DRP WAS RELATING TO THE EXCLUSION BY THE TPO OF THREE ENTITIES SELECTED AS COMPARABLES IN TH E T.P. STUDY REPORT FROM THE FINAL LIST OF COMPARABLES. THE DRP, HOWEVE R, DID NOT FIND THIS OBJECTION OF THE ASSESSEE TO BE SUSTAINABLE AND OVE RRULED THE SAME FOR THE FOLLOWING REASONS GIVEN IN THE TABULAR FORM:- COMPARABLE TPO ASSESSEE DRP 1. JOSTS ENGINEERING CO. LTD. THOUGH THE COMPANY IS INTO MANUFACTURE OF MATERIAL HANDLING EQUIPMENT IT ALSO MANUFACTURES THE COMPANY MANUFACTURES MATERIAL HANDLING EQUIPMENT WHICH IS SIMILAR TO THE ACTIVITIES OF ASSESSEE. THE EXCLUSION IS VALID IN VIEW OF DIVERSIFIED ACTIVITIES. GMM PFAUDLER HAS ALSO BEEN EXCLUDED ON I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 6 OF 16 OTHER EQUIPMENTS, COMPONENTS, ACCESSORIES AND SPARES. HENCE, THE COMPANY IS REJECTED AS A COMPARABLE FOR BEING INTO DIVERSIFIED ACTIVITIES. MAXIMUM REVENUE COMES FROM MATERIAL HANDLING EQUIPMENT. HENCE, THE COMPANY HAS BEEN ACCEPTED AS A COMPARABLE. IDENTICAL ISSUE. FOR CONSISTENCY THIS IS A VALID EXCLUSION. GMM PFAUDLER LTD. 2. AUTOMAG INDIA PVT. LTD. TPO HAS REJECTED THE COMPANY DUE TO NON- AVAILABILITY OF ANNUAL REPORT THE COMPANY THUS MANUFACTURES COMPARABLE PRODUCTS AND HAS BEEN ACCEPTED. THE EXCLUSION IS VALID AS THE INFORMATION NOT AVAILABLE- THE ASSESSEE HAS ALSO NOT FURNISHED THE FINANCIAL DATA. 3. WEVIN PVT. LTD. TPO HAS REJECTED THE COMPANY DUE TO NON- AVAILABILITY OF ANNUAL REPORT. THE COMPANY MANUFACTURES COMPARABLE PRODUCTS BEING CHAIN AND NON- CHAIN CONVEYORS AND HAS BEEN ACCEPTED AS A COMPARABLE. THE EXCLUSION IS VALID AS THE INFORMATION NOT AVAILABLE- THE ASSESSEE HAS ALSO NOT FURNISHED THE FINANCIAL DATA. 6. THE ASSESSEE-COMPANY ALSO RAISED OBJECTION FOR T HE INCLUSION OF ATLEAST 11 ENTITIES BY THE TPO IN THE LIST OF COMPA RABLES. IN THIS REGARD, THE DRP FOUND MERIT IN THE STAND OF THE ASSESSEE IN SO FAR AS SIX ENTITIES SELECTED BY THE TPO AS COMPARABLES WERE CONCERNED A ND DIRECTING THE EXCLUSION OF THE SAME FROM THE FINAL LIST OF COMPAR ABLES, THE REMAINING I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 7 OF 16 FIVE ENTITIES WERE RETAINED BY THE DRP IN THE FINAL LIST OF COMPARABLES FOR THE FOLLOWING REASONS GIVEN IN THE TABULAR FORM:- COMPARABLE TPO ASSESSEE DRP 1. BHARAT BIJLEE LTD. THIS IS FUNCTIONALLY COMPARABLE. AS SEEN ABOVE ELECTRIC MOTORS AND TRANSFORMERS COMPRISE ABOUT 92% OF THE TOTAL SALES OF THE COMPANY. THE COMPANY MANUFACTURES DIFFERENT PRODUCTS AND HENCE, SHOULD BE REJECTED. WHILE SELECTING COMPARABLES, THE FAR HAS TO BE CONSIDERED. PLAIN FUNCTIONAL COMPARABILITY CANNOT IGNORE THE PRODUCT/ITEM AS THE FUNCTIONAL COMPARABILITY IS IMPACTED BY THE NATURE OF PRODUCT. THE COMPARABLE IS TO BE EXCLUDED. 2. CTR MANUFACTURING INDUSTRIES LTD. THIS IS FUNCTIONALLY COMPARABLE. IT IS CLEAR THAT ENGINEERING AND ELECTRONIC PRODUCTS BEING TAP CHANGERS, CAPACITORS, RAILWAY EQUIPMENTS, FIRE SYSTEMS, WIND TURBINE GENERATION COMPRISE THE TOTAL SALES OF THE COMPANY. THE COMPANY MANUFACTURES DIFFERENT PRODUCTS AND HENCE, HAS BEEN REJECTED. WHILE SELECTING COMPARABLES, THE FAR HAS TO BE CONSIDERED. PLAIN FUNCTIONAL COMPARABILITY CANNOT IGNORE THE PRODUCT/ITEM AS THE FUNCTIONAL COMPARABILITY IS IMPACTED BY THE NATURE OF PRODUCT. THE I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 8 OF 16 COMPARABLE IS TO BE EXCLUDED. 3. EMCO ELECON (INDIA) LIMITED THIS IS FUNCTIONALLY COMPARABLE. THAT THE COMPANY MANUFACTURES DIVERSE PRODUCTS AND HENCE IS NOT COMPARABLE AND HAS BEEN REJECTED. THIS COMPANY MANUFACTURES LOADER MACHINES, ETC. THESE COME IN CLOSURE COMPARABILITY AND WOULD FALL IN SIMILAR FAR. THIS COMPARABLE SHOULD BE INCLUDED. 4. GMM PFAUDLER LTD. THIS IS FUNCTIONALLY COMPARABLE. ABOVE THE COMPANYS MAJOR SEGMENTS ARE: CHEMICAL PROCESS EQUIPMENT MIXING SYSTEM FILTRATION & SEPARATION WHILE SELECTING COMPARABLES, THE FAR HAS TO BE CONSIDERED. PLAIN FUNCTIONAL COMPARABILITY CANNOT IGNORE THE PRODUCT/ITEM AS THE FUNCTIONAL COMPARABILITY IS IMPACTED BY THE NATURE OF PRODUCT. THE COMPARABLE IS TO BE EXCLUDED. 5. GREAVES COTTON LTD. THIS IS FUNCTIONALLY COMPARABLE. THE COMPANY MANUFACTURES DIVERSE PRODUCTS BEING HIGH PRESSURE PUMPS, GEAR BOXES, PUMP SETS ETC. HENCE WHILE SELECTING COMPARBLES, THE FAR HAS TO BE CONSIDERED. PLAIN I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 9 OF 16 THE COMPANY HAS BEEN REJECTED. FUNCTIONAL COMPARABILITY CANNOT IGNORE THE PRODUCT/ITEM AS THE FUNCTIONAL COMPARABILITY IS IMPACTED BY THE NATURE OF PRODUCT. THE COMPARABLE IS TO BE EXCLUDED. 6. L&T CUTTING TOOLS LTD. THIS IS FUNCTIONALLY COMPARABLE. MOREOVER IT IS CLEAR THAT THE COMPANY MANUFACTURES UNRELATED PRODUCTS LIKE CUTTING TOOLS. HENCE, THE COMPANY HAS BEEN REJECTED. THIS FALLS IN SIMILAR FAR ANALYSIS AND THE FUNCTIONAL COMPARABILITY IS CLOSER. THIS IS A VALID COMPARABLE. THE TPO SHOULD SHARE THE FINANCIALS WITH THE ASSESSEE. 7. LINCOLN HELIOS (INDIA) LTD. THIS IS FUNCTIONALLY COMPARABLE. THUS IT IS EVIDENT THAT THE COMPANY IS INVOLVED IN MANUFACTURE, PURCHASE AND SALE OF CENTRALIZED LUBRICATION SYSTEMS AND PARTS THEREOF. HENCE, IT IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND IS THEREBY REJECTED. WHILE SELECTING COMPARABLES, THE FAR HAS TO BE CONSIDERED. PLAIN FUNCTIONAL COMPARABILITY CANNOT IGNORE THE PRODUCT/ITEM AS THE FUNCTIONAL COMPARABILITY IS IMPACTED BY THE NATURE I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 10 OF 16 OF PRODUCT. THE COMPARABLE IS TO BE EXCLUDED. 8. MAZDA LTD. THIS IS FUNCTIONALLY COMPARABLE. THE COMPANY IS INVOLVED IN MANUFACTURE OF ENGINEERING GOODS LIKE VACUUM PRODUCTS, EVAPORATORS, POLLUTION CONTROL EQUIPMENTS ETC. AND IS IN THE BUSINESS OF FOOD ITEMS. AS IT IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. WHILE SELECTING COMPARABLES, THE FAR HAS TO BE CONSIDERED. PLAIN FUNCTIONAL COMPARABILITY CANNOT IGNORE THE PRODUCT/ITEM AS THE FUNCTIONAL COMPARABILITY IS IMPACTED BY THE NATURE OF PRODUCT. THE COMPARABLE IS TO BE EXCLUDED. 9. OTIS ELEVATOR COMPANY (I) LTD. THIS IS FUNCTIONALLY COMPARABLE. THE COMPANY IS INVOLVED IN MANUFACTURE OF ELEVATORS AND ESCALATORS WHICH IS NOT THE ACTIVITY IN WHICH THE TESTED PARTY IS INVOLVED. HENCE, THE COMPANY IS REJECTED AS NOT BEING FUNCTIONALLY COMPARABLE. BEING AN IDENTICAL PRODUCT SEGMENT AND CLOSER FUNCTIONAL COMPARABILITY, THIS WOULD MEET THE FAR TESTS. IT IS A VALID COMPARABLE. 10. TIL LTD. THIS IS FUNCTIONALLY COMPARABLE. AS SEEN IN THE SCREENSHOT ABOVE THE COMPANY IS INTO DIVERSIFIED BUSINESS BEING AN IDENTICAL PRODUCT SEGMENT AND CLOSER I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 11 OF 16 SEGMENTS. THE LEARNED TPO HAD HIMSELF REJECTED COMPARABLES FOR BEING INTO DIVERSIFIED BUSINESS. MOREOVER THE COMPANY MANUFACTURES LIFTING, PORT AND ROAD BUILDING SOLUTIONS. FUNCTIONAL COMPARABILITY, THIS WOULD MEET THE FAR TESTS. IT IS A VALID COMPARABLE. 11. UT LTD. THE COMPANY MANUFACTURES HYDRAULIC ENGINEERING PRODUCTS SUCH AS TIPPING GARS, HYDRAULIC CYLINDERS ETC. AND HENCE HAS BEEN REJECTED. BEING AN IDENTICAL PRODUCT SEGMENT AND CLOSER FUNCTIONAL COMPARABILITY, THIS WOULD MEET THE FAR TESTS. IT IS A VALID COMPARABLE. 7. IN THE OBJECTIONS FILED BEFORE THE DRP, WORKING CAPITAL ADJUSTMENT WAS ALSO CLAIMED BY THE ASSESSEE AND ALTHOUGH A DET AILED SUBMISSION WAS MADE BY THE ASSESSEE ON THIS ISSUE, THE DRP FOUND T HAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO EXPLAIN AS TO WHY AN D HOW THE WORKING CAPITAL ADJUSTMENT WAS JUSTIFIED IN ITS OWN CASE AN D HOW THE VARIATION IN WORKING CAPITAL PROFILE WAS IMPACTING ALP COMPUTATI ON. IN THE ABSENCE OF THE SAME, THE DRP DID NOT ALLOW WORKING CAPITAL ADJ USTMENT AS SOUGHT BY THE ASSESSEE. AS REGARDS THE OTHER OBJECTION RAISED BY THE ASSESSEE REGARDING THE MISTAKE ON THE PART OF THE TPO IN COM PUTING THE CORRECT PLI, THE DRP DIRECTED THE A.O./TPO TO VERIFY THE SA ME. I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 12 OF 16 8. AS PER THE DIRECTION OF THE DRP, THE FINAL SET O F COMPARABLES WITH THEIR PLI (OP/TC) WAS REVISED BY THE TOP AS UNDER:- SL. NO. NAME OF THE COMPARABLE OP/TC 1. ACTION CONSTRUCTION EQUIPMENT LTD. 8.44% 2. ANDHRA PRADESH HEAVY MACHINERY & ENGG. LTD. 17.27% 3. AVERY INDIA LTD. 13.77% 4. EMCO ELECON INDIA LTD. 13.04 % 5. L&T CUTTING TOOLS LTD. 9.91% 6. OTIS ELEVATOR COMPANY (I) LTD. 16.55% 7. TIL LTD. 23.82% 8. UT LTD. ( - )7.86% 9. INTERNATIONAL COMBUSTION (INDIA) LTD. 13.89% 10. INTERNATIONAL CONVEYORS LTD. 6.31% SIMPLE ARITHMETIC MEAN 11.51% 9. THE TPO ALSO HELD THAT PURCHASES OF SERVICES OF GOODS WERE REQUIRED TO BE BENCH-MARKED TAKING OP/OR AS PLI, WH ILE SALE OF GOODS AND SERVICES WERE TO BE BENCH-MARKED BY TAKING OP/T C AS PLI. SINCE OP/TC WAS COMPUTED AT 11.51% BY TAKING THE SIMPLE A RITHMETIC MEAN, HE WORKED OUT THE ARMS LENGTH PRICE OP/OR AT 10.32%. BY APPLYING THE ARMS LENGTH PRICE OF 10.32% ON THE TOTAL COST, HE DETERMINED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF T HE ASSESSEE-COMPANY WITH ITS ASSOCIATED ENTERPRISES INVOLVING PURCHASE OF GOODS AND SERVICES AT RS.38,79,20,153/- AS AGAINST THE CORRESPONDING P RICE OF RS.39,61,63,371/- CHARGED BY THE ASSESSEE AND SINCE THE DIFFERENCE BETWEEN THEM AT 2.08% WAS WITHIN PERMISSIBLE LIMIT OF 5%, HE HELD THAT THERE WAS NO TRANSFER PRICING ADJUSTMENT WARRANTED. SIMILARLY, BY APPLYING THE ARMS LENGTH PLI OF 11.51%, HE DETERMI NED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSE SSEE-COMPANY WITH ITS ASSOCIATED ENTERPRISES INVOLVING SALES OF GOODS AND SERVICES AT I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 13 OF 16 RS.1,29,72,294/- AS AGAINST THE PRICE CHARGED BY TH E ASSESSEE AT RS.1,27,32,196/- AND SINCE THE DIFFERENCE BETWEEN T HE SAME AT 1.88% WAS WITHIN THE PERMISSIBLE LIMIT OF 5%, HE HELD THAT NO TRANSFER PRICING ADJUSTMENT WAS WARRANTED. THE TRANSFER PRICING ADJU STMENT AS ORIGINALLY WORKED OUT BY THE TPO AT RS.1,99,51,702/- THUS WAS REDUCED TO NIL AS A RESULT OF DIRECTIONS GIVEN BY THE DRP VIDE ITS ORDE R DATED 12.10.2015 PASSED UNDER SECTION 144C(5) OF THE ACT AND BEING A GGRIEVED BY THE SAME, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TR IBUNAL CHALLENGING EXCLUSION OF SIX PARTIES BY THE DRP FROM THE FINAL SET OF COMPARABLES, WHILE THE ASSESSEE HAS ALSO FILED CROSS OBJECTION S EEKING INCLUSION OF THREE ENTITIES SELECTED AS COMPARABLES IN THE T.P. STUDY REPORT BUT REJECTED BY THE TPO AS WELL AS DRP. THE ASSESSEE HA S ALSO CLAIMED WORKING CAPITAL ADJUSTMENT WHICH THE DRP HAS DISALL OWED. 10. THE LD. D.R. SUBMITTED THAT SIX ENTITIES SELEC TED BY THE TPO AS COMPARABLES ARE EXCLUDED BY THE DRP BY ACCEPTING TH E CONTENTION OF THE ASSESSEE THAT THE PRODUCTS MANUFACTURED BY THEM ARE NOT SIMILAR TO THE PRODUCTS MANUFACTURED BY THE TESTED PARTY. HE CONTE NDED THAT THE SAID ENTITIES ARE FUNCTIONALLY SIMILAR TO THE ASSESSEE-C OMPANY, INASMUCH AS THE SAME WERE ADMITTEDLY ENGAGED IN MANUFACTURING. HE CONTENDED THAT THE FUNCTIONAL COMPARABILITY BETWEEN THE SAID SIX E NTITIES AND THE ASSESSEE-COMPANY THUS WAS DULY ESTABLISHED AND, THE REFORE, THE DRP WAS NOT JUSTIFIED IN EXCLUDING THE SAME ON THE BASIS OF PRODUCTS DISSIMILARITY, ESPECIALLY WHILE APPLYING TNMM METHOD. HE CONTENDED THAT WHILE APPLYING TNMM METHOD, ONLY THE FUNCTIONAL SIMILARIT Y IS SUFFICIENT AND IT IS NOT NECESSARY TO TAKE FURTHER EFFORTS TO FIND OU T THE PRODUCT SIMILARITY. HE CONTENDED THAT TNMM ALLOWS FLEXIBILITY AND TOLER ANCE IN SELECTION OF COMPARABLES AS THE PRODUCT DISSIMILARITIES GET SUBS UMED AT NET MARGIN LEVELS. HE ALSO SUBMITTED THAT ATLEAST IN CASE OF T WO ENTITIES, NAMELY GREAVES COTTON LIMITED AND LINCOLN HELIOS (INDIA) L IMITED, THE PRODUCTS MANUFACTURED WERE BROADLY COMPARABLE TO THAT OF THE ASSESSEE-COMPANY I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 14 OF 16 AND THE DRP DIRECTED TO EXCLUDE THE SAME FROM THE F INAL LIST OF COMPARABLES IGNORING THIS VITAL ASPECT. 11. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE-COMPANY IS MAINLY ENGAGED IN THE MANUF ACTURING OF MATERIAL HANDLING PRODUCTS AND SINCE THE PRODUCTS MANUFACTUR ED BY THE CONCERNED SIX ENTITIES EXCLUDED BY THE DRP WERE NOT EVEN BROA DLY SIMILAR TO THAT OF THE ASSESSEE-COMPANY, THE SAME WERE RIGHTLY EXCLUDE D BY THE DRP. HE ALSO CONTENDED THAT WHEN THE COMPARABLES SELECTED B Y THE ASSESSEE AS WELL AS OTHER COMPARABLES SELECTED BY THE TPO HIMSE LF HAVING FUNCTIONAL AND PRODUCT SIMILARITIES TO THE ASSESSEE-COMPANY WE RE SUFFICIENT IN NUMBER FOR DOING THE COMPARABILITY ANALYSIS TO DETE RMINE THE ARMS LENGTH PRICE BY APPLYING THE TNMM, THERE WAS NO JUS TIFICATION TO INCLUDE THE ENTITIES NOT HAVING PRODUCT SIMILARITY TO THE A SSESSEE-COMPANY FOR DETERMINING THE ARMS LENGTH PRICE EVEN BY APPLYING THE TNMM METHOD. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NO DOU BT TRUE THAT COMPARABILITY ANALYSIS WHILE APPLYING TNMM METHOD M AY BE LESS SENSITIVE TO CERTAIN DISSIMILARITY BETWEEN THE TEST ED PARTY AND THE COMPARABLES. HOWEVER, AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF GREEN SOLUTIONS PVT. LIMITED VS.- CIT (I.T . APPEAL NO. 102/2015 DATED 10.08.2015), THAT CANNOT BE THE CONSIDERATION FOR DILUTING THE STANDARDS OF SELECTING COMPARABLE ENTITIES AND THE HIGHER PRODUCT AND FUNCTIONAL SIMILARITY WOULD ALWAYS GO TO STRENGTHEN THE EFFICACY OF THE METHOD IN ASCERTAINING THE RELIABLE ARMS LENGTH PR ICE. WHILE APPLYING THE TNMM METHOD, FUNCTIONAL COMPARABILITY IS REQUIRED T O BE OF HIGH LEVEL WHILE THE PRODUCT COMPARABILITY CAN BE OF BROAD LEV EL. HOWEVER, WHILE CONSIDERING THE PRODUCT COMPARABILITY EVEN AT A BRO AD LEVEL, THE NATURE OF PRODUCTS MANUFACTURED BY THE COMPARABLES, VIS-A-VIS THAT OF THE TESTED PARTY IS REQUIRED TO BE CONSIDERED AND IF THE NATUR E OF PRODUCTS I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 15 OF 16 MANUFACTURED BY THE COMPARABLES IS FOUND TO BE ENTI RELY DIFFERENT FROM THE TESTED PARTY, SUCH COMPARABLES ARE LIABLE TO BE EXCLUDED ON THE GROUND THAT THERE IS NO PRODUCT COMPARABILITY EVEN AT A BROAD LEVEL. IN THE PRESENT CASE, THE ASSESSEE-COMPANY IS MAINLY EN GAGED IN THE MANUFACTURE OF MATERIAL HANDING EQUIPMENTS AND AS R IGHTLY HELD BY THE DRP, THE PRODUCTS MANUFACTURED BY THE CONCERNED SIX ENTITIES SELECTED AS COMPARABLES BY THE TPO WERE NOT COMPARABLES TO THAT OF THE ASSESSEE- COMPANY EVEN AT BROAD LEVEL AS THE NATURE OF THE SA ME ITSELF WAS DIFFERENT. FOR INSTANCE, M/S. BHARAT BIJLI LIMITED WAS MAINLY ENGAGED IN THE MANUFACTURING OF ELECTRIC MOTORS AND TRANSFORME RS, THE NATURE OF WHICH IS ALTOGETHER DIFFERENT FROM THE PRODUCTS MAN UFACTURED BY THE ASSESSEE, VIZ. MATERIAL HANDLING EQUIPMENTS. SIMILA RLY, CTR MANUFACTURING INDUSTRIES LIMITED WAS ENGAGED IN THE MANUFACTURING OF ENGINEERING AND ELECTRONICS PRODUCTS BEING TAP CHAN GERS, CAPACITORS, RAILWAY EQUIPMENTS, FIRE SYSTEMS, WIND TURBINE GENE RATION ETC. WHILE GMM PFAUDLER LIMITED WAS ENGAGED IN THE BUSINESS OF MANUFACTURING CHEMICAL PROCESS EQUIPMENTS, MIXING SYSTEM, FILTRAT ION AND SEPARATION. EVEN IN THE CASE OF GREAVES COTTON LIMITED CITED BY THE LD. D.R., THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF DIVERS E PRODUCTS SUCH AS HIGH-PRESSURE PUMPS, GEAR BOXES, ETC., WHILE M/S. L INCOLN HELIOS (INDIA) LIMITED WAS ENGAGED IN MANUFACTURING OF LUBRICATION SYSTEMS. IN OUR OPINION, THE NATURE OF THESE PRODUCTS MANUFACTURED BY THE CONCERNED SIX COMPARABLES THUS WAS ENTIRELY DIFFERENT FROM THE PR ODUCT RANGE MANUFACTURED BY THE ASSESSEE AND SINCE THERE WAS NO PRODUCT COMPARABILITY EVEN AT BROAD LEVEL, WE FIND OURSELVE S IN AGREEMENT WITH THE DRP THAT THE SAME ARE LIABLE TO BE EXCLUDED FRO M THE FINAL LIST OF COMPARABLES. WE ACCORDINGLY UPHOLD THE IMPUGNED ORD ER OF THE LD. DRP ON THIS ISSUE AND DISMISS THE APPEAL FILED BY THE R EVENUE. 13. AS A RESULT OF OUR DECISION RENDERED ABOVE UPHO LDING THE ORDER OF THE DRP EXCLUDING THE CONCERNED SIX COMPARABLES FRO M THE FINAL LIST OF I.T.A. NO 130/KOL/2016 ASSESSMENT YEAR: 2011-2012 & C.O. NO. 18/KOL/2016 (IN ITA NO. 130/KOL/2016) ASSESSMENT YEAR: 2011-2012 PAGE 16 OF 16 COMPARABLES, THE ISSUES RAISED IN THE CROSS OBJECTI ON FILED BY THE ASSESSEE SEEKING INCLUSION OF THREE COMPARABLES SEL ECTED IN THE T.P. STUDY REPORT AND CLAIMING WORKING CAPITAL ADJUSTMENT HAVE BECOME INFRUCTUOUS, AS AGREED EVEN BY THE LD. COUNSEL FOR THE ASSESSEE. WE ACCORDINGLY DISMISS THE CROSS OBJECTION FILED BY TH E ASSESSEE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE AND CR OSS OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON MAY 18, 2018. SD/- SD/- (A.T. VARKEY) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 18 TH DAY OF MAY, 2018 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (2) M/S. SCHENCK PROCESS INDIA LIMITED, EN-26, AMRIT TOWER, 6 TH FLOOR, SECTOR-V, SALT LAKE CITY, KOLKATA-700 091 (3) DISPUTE RESOLUTION PANEL-2, NEW DELHI (4) COMMISSIONER OF INCOME TAX (APPEALS)- (5) COMMISSIONER OF INCOME TAX- , (6) THE DEPARTMENTAL REPRESENTATIVE (7) GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/D.D.O. INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.