BWI Automotive Technologies Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1669/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3629 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 20-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY CHOUDHARY
• Assessee Lawyers: SAWETA GUPTA
• Keywords: Transfer pricing; International transaction; Additional evidence
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, I-1: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.1669/DEL/2017 [ASSESSMENT YEAR: 2011-12] BWI AUTOMOTIVE TECHNOLOGIES PVT LTD. OFFICE NO.102, PLOT NO.1/50, 1 ST FLOOR, GANGA APARTMENT, LALITA PARK, LAXMI NAGAR, NEW DELHI-1100092 VS. DCIT, CIRCLE-5(1), NEW DELHI PAN- AADCB7841G ASSESSEE REVENUE ASSESSEE BY MS. SAWETA GUPTA, AR REVENUE BY SH.VIJAY CHOUDHARY , SR. DR DATE OF HEARING 15.07.2021 DATE OF PRONOUNCEMENT .10.2021 ORDER PER KUL BHARAT, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 16.09.2016 OF THE LEARNED CIT(A)-44, NE W DELHI, RELATING TO ASSESSMENT YEAR 2011-12. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. LD COMMISSIONER OF INCOME TAX (A) ('LD. CIT (A)' ) HAS ERRED IN MAKING AN ADDITION TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LENGTH PRICE ('ALP') OF THE FOLLOWING INTERNATIONAL TRANSACTIONS: ITA NO.-1669/DEL/2017 2 1A. IMPORT OF MATERIALS AMOUNTING TO RS. 35,766,157/- 1B. RECEIPT OF ENGINEERING SUPPORT SERVICES AMOUNTING TO RS. 35,835,172/- 1C. RECEIPT OF ADMINISTRATIVE SUPPORT SERVICES AMOUNTING TO RS. 69,526,849/- 2. IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN CONSIDERING THE APPELLANT AS THE TESTED PARTY BY WRONGLY CONSIDERING THAT: 2A. THE APPELLANT IS PERFORMING SIMPLER FUNCTIONS AND THUS LEAST COMPLEX ENTITY. 2B. THE APPELLANT IS DEPENDENT ON INTANGIBLES OF IT S ASSOCIATED ENTERPRISES ('AES') 3. IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN REJECTING FOREIG N AE AS THE TESTED PARTY AND REJECTING COMPARABLE COMPANIES AS SELECTED BY THE APPELLANT. 4. WITHOUT PREJUDICE TO THE ABOVE, AND IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN SELECTING COMPARABLE COMPANIES BY CONSIDERING APPELLANT AS THE TESTED PARTY. 5. WITHOUT PREJUDICE TO THE ABOVE, AND IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN COMPUTING OPERATING MARGIN OF THE APPELLANT EVEN IF APPELLANT IS CONSIDERED AS THE TESTED PARTY BY CONSIDERING FOREIGN EXCHANGE GAIN AS NON-OPERATING INCOME. 6. WITHOUT PREJUDICE TO THE ABOVE, AND IN LAW AND O N FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A ) HAS ERRED IN REJECTING COMPLETE FRESH SEARCH PROPOSED BY THE APPELLANT EVEN IF APPELLANT IS CONSIDERED AS THE TESTED PARTY DUE TO THE FACT THAT APPELLANT HAS APPLIED EXPORT TURNOVER FILTER. 7. WITHOUT PREJUDICE TO THE ABOVE, AND IN LAW AND ITA NO.-1669/DEL/2017 3 ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN APPRECIATING THE FACT THAT THE LOS S OF THE APPELLANT WAS DUE TO ITS INITIAL YEAR YEARS OF OPERATION AND THUS THE APPELLANT WAS NOT ABLE TO FETCH GOOD MARKET PRICES AND WAS EARNING LESS MARGINS AT GROSS LEVEL AS COMPARED TO COMPARABLE COMPANIES AND THE LOSS WAS NOT DUE TO INTERNATIONAL TRANSACTIONS ENTERED. ACCORDINGLY, THE LD. CIT(A) OUGHT TO HAVE GIVEN ADJUSTMENT FOR THE FACT THAT TH E APPELLANT WAS IN INITIAL YEAR OF OPERATIONS AND EARNING LOW GROSS MARGIN AS COMPARED TO THE COMPARABLE COMPANIES. 8. WITHOUT PREJUDICE TO THE ABOVE AND IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED ON LAW BY NOT GRANTING THE APPELLANT THE OPTION TO CHOSE A PRICE THAT FALLS WI THIN +/- 5% RANGE OF THE ARITHMETIC MEAN OF THE COMPARABLES, AS CONTEMPLATED UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT. 9. IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT IN THE INTEREST OF JUSTICE, MAY BE ALLOWED TO ADDUCE ADDITIONAL EVIDENCE AS MAY BE NECESSARY IN SUPPORT OF THE GROUNDS RAISED HEREINABOVE AFTER FOLLOWING DUE PROCEDURES LAID DOWN IN THE INCOME TAX (APPELLATE TRIBUNALS) RULES, 1963. 2. THE FACTS GIVING RISE TO THE PRESENT APPEAL ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 30.1 1.2011 DECLARING A LOSS OF RS.7,59,41,961/-. THE ASSESSEE WAS INCORPORATED ON JUNE 2009. IT IS CURRENTLY ENGAGED IN THE MANUFACTURING OF SUSPENSION OF PRODUCTS (SHOCK ABSO RBERS AND STRUT MODULES). THE CURRENT FINANCIAL YEAR (I. E. FINANCIAL YEAR 2010-11) IS THE FIRST FULL YEAR OF OPERATIONS AND THE ITA NO.-1669/DEL/2017 4 COMPANY WAS STILL IN THE PROCESS OF SETTING UP ITS FULL FLEDGED OPERATIONS. THE CASE WAS SELECTED FOR SCRUTINY ASSE SSMENT. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS OBSERVED THAT AS PER FORM NO.3CEB FILED ALONG WITH INCOME TAX RETURN, THE ASSESSEE DURING THE YEA R HAD INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AES)/CONCERNS. HENCE, IN ORDER TO DETERMINE THE ALP IN RELATION TO INTERNATIONAL TRANSACTIONS, THE CASE WA S REFERRED TO THE TRANSFER PRICING OFFICER (TPO) AFTER OBTAININ G NECESSARY PRIOR APPROVAL OF THE LD. CIT, DELHI-I. THEREAFTER , IN PURSUANCE TO THE REFERENCE, THE TPO PASSED THE ORDE R U/S 92CA(3) OF THE ACT, THEREBY HE RECOMMENDED THE UPW ARD ADJUSTMENT OF RS.1,96,21,839/- IN RESPECT OF DETERM INATION OF ARMS LENGTH PRICE (HEREINAFTER ALP) OF THE INTER NATIONAL TRANSACTIONS. THE ASSESSING OFFICER AFTER HAVING RE CEIVED THE ORDER OF TPO ISSUED A SHOW CAUSE NOTICE DATED 06.02 .2015 CALLING UPON AS TO WHY THE ADJUSTMENTS AS RECOMMEND ED BY THE TPO SHOULD NOT BE MADE. 3. IN RESPONSE THERETO, THE ASSESSEE COMPANY FILED ITS REPLY DATED 13.03.2015, HOWEVER, THE SAME WAS NOT F OUND ACCEPTABLE BY THE ASSESSING OFFICER AND THE ASSESSI NG OFFICER ITA NO.-1669/DEL/2017 5 ON THE BASIS OF ADJUSTMENT AS SUGGESTED BY THE TPO MADE ADDITION OF RS.1,96,21,839/-, HENCE ASSESSED THE IN COME AT LOSS OF RS.5,63,20,122/- AGAINST RETURNED LOSS OF RS.7,59,41,961/-. 4. AGGRIEVED AGAINST THIS, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE PARTLY ALLOWED THE APPE AL. THEREBY, THE LD. CIT(A) SUSTAINED THE FINDING OF TH E ASSESSING OFFICER REJECTING FOREIGN AES AS THE COMPARABLE INS TEAD OPTING NTN JAPAN AS ONE OF THE COMPARABLES. LD.CIT(A) FUR THER REJECTED THE GROUNDS REGARDING CONSIDERING THE APPE LLANT AS A TESTED PARTY AND ALSO COMPUTING MEAN OPERATING MARG IN OF THE ASSESSEE. HOWEVER, THE REQUEST OF THE ASSESSEE AS MADE IN GROUND NOS.8 & 9, BEFORE LD.CIT(A) WAS ALLOWED. TH E TPO WAS DIRECTED TO VERIFY THE PROPORTIONATE ADJUSTMENT AND COMPUTATION OF THE ARM'S LENGTH PRICE ADJUSTMENT. 5. AGGRIEVED AGAINST THIS, THE ASSESSEE IS IN APPEA L BEFORE THIS TRIBUNAL. 6. GROUND NO.1 IS GENERAL IN NATURE NEEDS NO SEPARA TE ADJUDICATION. ITA NO.-1669/DEL/2017 6 7. GROUND NO. 9 IS PRAYER FOR ADDUCING ADDITIONAL E VIDENCE. NO SUCH PRAYER WAS MADE DURING THE COURSE OF HEARIN G, HENCE DISMISSED. 8. GROUNDS NO.2 TO 8 ARE INTERCONNECTED AND RELATED TO THE TRANSFER PRICING ARE BEING DISPOSED OF TOGETHER. 9. THE LD. COUNSEL FOR THE ASSESSEE HAS FILED WRITT EN SUBMISSIONS. THE GIST OF THE SUBMISSIONS OF THE ASS ESSEE IN BRIEF ARE THAT FOR THE PURPOSES OF COMPUTATION OF A RM'S LENGTH PRICE OF THE IMPUGNED INTERNATIONAL TRANSACTION, TH E ASSESSEE IN ITS TRANSFER PRICING STUDY RELIED UPON TRANSACTI ONAL NET MARGIN METHOD (TNMM) BY CONSIDERING AES AS TESTED PARTY. THE APPELLANT APPLIED OPERATING PROFIT (OP) EARNED BY THE AE FROM THE INTERNATIONAL TRANSACTION BY NET COST AS T HE RELEVANT PROFIT LEVEL INDICATOR (PLI). ON THE BASIS OF FU NCTIONAL, ASSETS AND RISK ANALYSIS OF THE TRANSACTION, AES OF THE AS SESSEE WAS CHARACTERIZED AS MANUFACTURER OF GOODS ASSUMING LES S THAN NORMAL RISKS ASSOCIATED WITH CARRYING OUT SUCH A BU SINESS. THUS, IT WAS SELECTED AS THE TESTED PARTY SINCE THE Y ARE THE LEAST COMPLEX OF THE CONTROLLED TAX PAYERS. TO OBT AIN A BENCHMARK OF COMPARABLE COMPANIES FOR THE AES OF TH E APPELLANT, OSIRIS DATABASE, A SEARCH ENGINE COVERIN G FINANCIAL ITA NO.-1669/DEL/2017 7 AND BUSINESS DATA FOR COMPANIES OPERATING ACROSS TH E GLOBE WAS USED FOR THE TRANSACTIONS OF RECEIPT OF ENGINEE RING SUPPORT SERVICES AND ADMINISTRATIVE SUPPORT SERVICES. THE A RITHMETIC MEAN OP/OC WAS COMPUTED AS PER THE COMPUTATION OF M EAN MARGIN OF THE COMPARABLE COMPANIES WAS MORE THAN MA RK UP CHARGED BY THE AES FROM THE APPELLANT. THE IMPUGNE D TRANSACTIONS WERE CONCLUDED TO BE AT ARM'S LENGTH P RICE. THE LD. TPO VIDE ITS ORDER HAD REJECTED AES OF THE APPE LLANT AS THE TESTED PARTY AND CONSIDERED APPELLANT AS THE TESTED PARTY. FURTHER, FOR BENCHMARKING THE TRANSACTIONS RELATED TO IMPORT OF MATERIAL AND RECEIPT OF ENGINEERING AND ADMINIST RATIVE SUPPORT SERVICES, LD. TPO HAD USED TNMM AS THE MOST APPROPRIATE METHOD. HOWEVER, THE LD. TPO HAD USED R ANE (MADRAS) LTD.; SONA SOMIC LEMFORDER COMPONENTS LTD. ; AND GABRIEL INDIA LTD. AS THE COMPARABLES FOR THE PURPO SE OF TNMM. THE MEAN MARGIN OF THESE COMPANIES WAS 5.62 %. SINCE THE MARGIN EARNED BY THE ASSESSEE DURING THE YEAR, WAS LESS THAN THE MEAN MARGIN OF THE COMPARABLE COMPANI ES. THE TPO COMPUTED THE TRANSFER PRICING ADJUSTMENT AND TH EREBY, HE PROPOSED ADJUSTMENT OF RS.1,96,21,839/-. THE LD. COUNSEL SUBMITTED THAT THE LD.TPO AND LD.CIT(A) GROSSLY ER RED IN ITA NO.-1669/DEL/2017 8 CONSIDERING THE APPELLANT AS TESTED PARTY. THUS, T HE IMPUGNED ORDER HAS NO GROUND TO STAND AND WAS PASSED WITH PR E- DETERMINATION OF MIND. IT WAS FURTHER SUBMITTED TH AT IT IS AN ACCEPTED RULE THAT LEAST COMPLEX ENTITY SHOULD BE C ONSIDERED AS TESTED PARTY AND THAT IN THIS CASE IS AES. THE AUTOMOBILE INDUSTRY/AUTOPARTS INDUSTRY IS AN INDUSTRY DRIVEN B Y INNOVATION WHERE COMPANIES COMPETE WITH EACH OTHER FOR DEVELOPING MORE EFFICIENT AND SUPERIOR PRODUCTS EVE RY DAY. THUS, IN ORDER TO COMPETE IN THE MARKET, IT WAS CRU CIAL FOR APPELLANT TO UNDERTAKE CONTINUOUS ENGINEERING R & D ACTIVITIES. THE ASSESSEE COMPANY DOES NOT HAVE ANY ENGINEERING DESIGN TEAM OF ITS OWN INSTEAD OF IT RE CEIVES SUCH ENGINEERING DESIGN SUPPORT SERVICES FROM ITS AE-BWI POLAND. IN CONSIDERATION, THE AE CHARGED THE APPELLANT A MA RK-UP OF 5% ON ALL COSTS INCURRED BY IT. FURTHER, THE APPEL LANT ALSO RECEIVES SUPPORT SERVICES IN THE NATURE OF SELLING AND MARKETING ACTIVITIES FROM ITS AE-BWI INC. 10. LD. SR. DR OPPOSED THESE SUBMISSIONS AND SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT LD.CIT(A) HAS REJECTED THE GROUNDS AS THE ASSESSEE FAILED TO PROVIDE COMPLETE AND RELIABLE DATA IN RESPECT OF AES FOR BE NCHMARKING ITA NO.-1669/DEL/2017 9 THE INTERNATIONAL TRANSACTION WHICH COULD BE VERIFI ED FROM THE FINANCES OF THE AE. FURTHER, COMPARABLE DATA FOR AE AS THE TESTED PARTY WAS ALSO NOT VERIFIABLE WITH ANY STATU TORY COURTS. 11. IN REJOINDER, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR AN ENTITY SELECTED AS A TESTED P ARTY, RELIABLE INFORMATION REGARDING ITS COMPARABLE SHOULD BE AVAI LABLE IN PUBLIC DOMAIN. IT WAS FURTHER SUBMITTED THAT THE A SSESSEE HAD OUTSOURCED ALL THE MANUFACTURING PROCESS SINCE THE APPELLANT PERFORMED VERY LITTLE FUNCTIONS FOR MANUF ACTURING PROCESS. THE ASSESSEE WAS NOT ABLE TO IDENTIFY THA T THERE EXISTED SIMILAR THIRD PARTY ARRANGEMENTS DUE TO LIM ITED DATA AVAILABILITY IN PUBLIC DOMAIN. FURTHER, THE COMPAR ABLES AS PROPOSED BY LD.TPO VIDE HIS ORDER DATED 29.12.2014 WERE COMPLETELY FUNCTIONALLY DIFFERENT TO THE APPELLANT AS THOSE COMPARABLES ARE INVOLVED IN FULL FLEDGED IN-HOUSE MANUFACTURING WHICH IS EVIDENT FROM THEIR ANNUAL RE PORTS AS ENCLOSED WITH THE PAPER BOOK. ON THE OTHER HAND, TH E ASSESSEE HAS OUTSOURCED ITS MANUFACTURING FUNCTION TO DELPHI INDIA. HE SUBMITTED THAT THE AUTHORITIES BELOW FAI LED TO APPRECIATE THAT THERE WOULD BE CERTAINLY IMPACT ON PROFIT MARGIN IF THE MANUFACTURING IS CARRIED OUT BY SELF AND IT IS ITA NO.-1669/DEL/2017 10 OUTSOURCED. FURTHER, DUE TO LACK OF RELIABLE COMPA RABLE DATA, THE APPELLANT COULD NOT BE TAKEN AS A TESTED PARTY FOR THE BENCHMARKING PURPOSE. ACCORDINGLY, THE AE WHICH WA S INVOLVED IN THE PROVISION OF SERVICES AND RAW MATER IAL FOR WHICH THE COMPARABLE DATA WAS READILY AVAILABLE IN PUBLIC DOMAIN OUGHT TO HAVE BEEN ACCEPTED AS TESTED PARTY. IT WAS FURTHER CONTENDED THAT THE TPO HAD ERRED IN REJECTI NG THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE A E OWN SIGNIFICANT INTANGIBLES, HOWEVER, THE TPO FAILED TO APPRECIATE THAT IN RESPECT OF TRANSACTION UNDER DISPUTE, THE A E OF THE APPELLANT DID NOT OWN ANY NON-ROUTINE TANGIBLES AND SOLELY ENGAGED IN THE PROVISION OF RAW MATERIAL AND SERVIC ES. THUS, THEY MAY BE CONSIDERED LEAST COMPLEX FROM THE POINT OF FUNCTION PERFORMED RISK BORNE AND ASSETS OWNED. MO REOVER, IN T.P. REPORT OF THE APPELLANT HAS NOT ATTRIBUTED INT ANGIBLES ASSETS TO ANY AE RATHER THEIR OWNERSHIP REMAINED WI TH BWI GROUP. FURTHER, THE ORDER OF THE TPO SUFFERS FROM VARIOUS MISTAKES/MISINTERPRETATION WHICH CAN BE INFERRED FR OM CITING THE EXAMPLE TO EXPLAIN THE RELATIONSHIP BETWEEN THE ASSESSEE AND ITS AE. FURTHER, IT WAS CONTENDED THAT LD.CIT( A) ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT COMPL ETE AND ITA NO.-1669/DEL/2017 11 RELIABLE DATA FOR BENCHMARKING THE INTERNATIONAL TR ANSACTION WAS NOT PROVIDED. LD.CIT(A) FAILED TO APPRECIATE T HE FACT THAT THE APPELLANT HAD SUBMITTED THE TRANSFER PRICING RE PORTS DOCUMENTATION OF THE FOREIGN AE ALONG WITH P&L A/C OF THE FOREIGN COMPARABLES TO THE TPO. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL ON RECORD AND GONE THROUGH THE SUBMISSIONS OF THE ASSESSEE. THE GRIEVANCES OF THE ASSESSEE ARE IN THR EE FOLD, ONE THAT THE APPELLANT OUGHT NOT TO BE CONSIDERED AS TE STED PARTY, TWO THE COMPARABLES SELECTED BY THE TPO WHO ARE FUN CTIONALLY DIFFERENT FROM THE ASSESSEE HAVING DIFFERENT BUSINE SS MODULE AND THREE NOT GRANTING THE APPELLANT THE OPTION TO CHOOSE A PRICE THAT FALLS WITHIN THE 5% RANGE OF ARITHMETIC MEAN OF COMPARABLES AS CONTEMPLATED UNDER PROVISO OF SECTI ON 92C(2) OF THE ACT. THE LD. CIT(A) HAS DECIDED THE ISSUES AGAINST THE ASSESSEE BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE TRANSFER PRICING ORDER, WRIT TEN SUBMISSION AND ORAL ARGUMENTS OF THE LD. AR CAREFUL LY. IT IS UNDISPUTED POSITION THAT THE TESTED PARTY SHO ULD BE SELECTED ON THE BASIS OF SIMPLER ROLES. THE PARTY W HICH PERFORMS COMPLEX FUNCTIONS SHOULD BE AVOIDED FROM CHOOSING THE TESTED PARTY. FURTHER IN RESPECT OF TH E TESTED PARTY AS WELL AS THE COMPARABLES RELIABLE AN D VERIFIABLE DATA SHOULD NOT BE PRESENT. THE LD AR I S ARGUING THAT THE APPELLANT IS PERFORMING SIMPLER TA SK. ITA NO.-1669/DEL/2017 12 IN SUBSEQUENT GROUNDS OF APPEAL THE LD AR HAS TAKEN THE STAND THAT THE APPELLANT IS IN NASCENT STAGE THEREFORE, CONDUCTING MANUFACTURING PROCESS AS 3 RD PARTY CONTRACT MANUFACTURERS THEREFORE, DURING THIS STAGE THE APPELLANT IS COMPLETELY DEPENDANT ON ITS AE FOR TECHNOLOGY TRADE NORMS AND TECHNOLOGY GUIDELINE S FOR ITS OPERATION. APPELLANT ONLY DOES NOT TAKE SEL LING AND MARKETING SUPPORT AND TECHNOLOGY SUPPORT FROM I TS AE BUT ALSO IMPORTS VITAL RAW MATERIALS FROM THE AE . BWI GROUP IS OLD ESTABLISHMENT IN AUTOMOBILE- SECTO R THEREFORE, THE FUNCTION PERFORMED BY THESE AES FOR MANUFACTURING OF PARTS USED BY THE APPELLANT AS RAW MATERIALS CANNOT BE SAID AS SIMPLER TASK JUST BECAU SE THOSE INTERMEDIATE PRODUCTS ARE USED BY APPELLANT A S RAW MATERIALS. THE EXPENDITURE OF THE APPELLANT IS ON THE USE OF TRADE MARK AND TECHNOLOGY EXPERTISE OF T HE AE THEREFORE, I AM NOT CONVINCED THAT THE APPELLANT IS PERFORMING SIMPLER FUNCTION COMPARE TO ITS AE. FURTHER, LD AR HAS NOT PROVIDED COMPLETE AND RELIAB LE DATA IN RESPECT OF ITS AE FOR BENCH MARKING THE INTERNATIONAL TRANSACTIONS WHICH CAN BE VERIFIED FR OM THE FINANCIALS OF THE AE. FURTHER, COMPARABLES DATA FOR AE AS THE TESTED PARTY IS ALSO NOT VERIFIABLE WITH ANY STATUTORY RECORDS. IN THE CASE OF INDIGENOUS COMPARABLES THE DATA OF THE COMPARABLES COMPANIES CAN BE VERIFIED FROM AUTHENTIC AND STATUTORY SOURCE SUCH AS DATA FROM MCA SITES AND BSE/NSE SITES. CONSIDERING THE ENTIRE FACTS AND SIGNIFICANCE OF TH E CASE I CONFIRM THE DECISION OF THE TPO TO REJECT AE AND SELECT THE APPELLANT AS THE TESTED PARTY. 13. FURTHER, THE LD. CIT(A) ALSO REJECTED THE ARGU MENTS OF THE ASSESSEE IN RESPECT OF COMPARABLES SELECTED BY THE TPO BY OBSERVING AS UNDER:- I HAVE CONSIDERED ORDER OF THE TPO AND ARGUMENTS OF THE LD. AR. ITA NO.-1669/DEL/2017 13 THE APPELLANT HAS USED FACILITY OF DELPHI INDIA LTD . FOR MANUFACTURING OF AUTO COMPONENTS THROUGH CONTRA CT MANUFACTURING SERVICE AGREEMENT DATE 1 ST DAY OF NOVEMBER 2009 BETWEEN THE APPELLANT AND DELPHI AUTO MOTIVE SYSTEM LTD. THIS AGREEMENT IS ONLY FOR THE USE OF MANUFACTURING FACILITY OF DELPHI INDIA. THERE IF NO MENTION OF MARKETING DIVISION FOR THE SALE OF THE PRODUCTS OF THE APPELLANT. THE FACTS REMAINS THAT T HE RAW MATERIALS IS BEING PROVIDED BY THE APPELLANT TH E PRODUCTION IS CARRIED OUT IN ACCORDANCE WITH AND GUIDANCE OF THE APPELLANT THROUGH THE USE OF ITS AE S ENGINEERING CONSULTANCY MARKETING IS DONE IN THE NA ME OF BWI GROUP THEREFORE EVEN THOUGH THE APPELLANT IS USING MANUFACTURING FACILITIES OF OTHER DURING THE YEAR, THE FACTS REMAIN THAT THE APPELLANT IS M THE MANUFACTURING AND SALES OF AUTOMOBILE PARTS THREE COMPARABLES NAMELY RANE (MADRAS), SONA SOMIC LEMFORDER COMPONENTS LTD., AND GABRIEL INDIA LTD. A RE IN THE BUSINESS OF MANUFACTURING OF AUTO COMPONENT THEREFORE, IN MY VIEW SLIGHT VARIATION OF EITHER EN GAGING MANPOWER AND USE OF FACTORY OF ITS OWN OR TO A CONT RACT MANUFACTURING WILL NOT ALTER THE PROFITABILITY MUCH . IN FACT APPELLANT HAS TAKEN ALTERNATIVE TP STUDY TREAT ING ITSELF AS TESTED PARTY WHERE ALSO THE COMPARABLES A RE TAKEN OF MANUFACTURING OF AUTO MOBILE COMPONENTS AN D NOT ON THE BASIS OF CONTRACT MANUFACTURERS. AS FAR AS EXPORT TURNOVER OF THE COMPARABLE NAMELY RANE (MADRAS) LTD. AND GABRIEL INDIA LTD IS CONCERN ED EXPORT TURNOVER COMPARED TO ITS TOTAL TURNOVER-IS L ESS THAN 20% IN THE CASE OF RANE MADRAS LTD. AND IN THE CASE OF GABRIEL INDIA LTD. IT IS 13%. THEREFORE, EX PORT TURNOVER IN BOTH THE COMPARABLES IS LESS THAN 20% O F THE TURNOVER. THEREFORE IN MY VIEW SMALL PORTION OF EXP ORT TURNOVER, WILL NOT EFFECT THE CHANGE IN THE FUNCTIO NALITY WHICH WARRANTS EXCLUSION OF JIESE COMPARABLES. AS A RESULT I APPROVE ALL THE THREE COMPARABLES IN THE F INAL LIST. ACCORDINGLY, THIS GROUNDS OF APPEAL IS DISMI SSED. 14. WE FIND MERIT INTO THE CONTENTION OF THE LEARN ED COUNSEL FOR THE ASSESSEE THAT COMPARABLES SELECTED BY THE TPO ITA NO.-1669/DEL/2017 14 ARE FUNCTIONALLY DIFFERENT ON ACCOUNT OF THE FACT T HAT THE ASSESSEE DID NOT HAVE ITS OWN MANUFACTURING FACILIT Y, THE BUSINESS MODEL OF THE ASSESSEE IS QUITE DIFFERENT C OUPLED WITH FACT THAT THE APPELLANT IS OPERATING ONLY IN DOMEST IC MARKET WHEREAS THE COMPARABLES NAMELY RANE (MADRAS) LIMITE D AND GABRIEL INDIA LTD. HAD SUFFICIENT EXPORT TURNOVER. WE ARE CONSCIOUS OF THE FACT THAT TWO COMPANIES CANNOT BE COMPARED WITH ACCURATE ARITHMETIC PRECISION; HOWEVER, THE FA CTORS THAT WOULD INFLUENCE THE PROFIT MARGIN SUBSTANTIALLY SHO ULD BE KEPT IN MIND WHILE REJECTING THE COMPARABLES. IN THE PRE SENT CASE, THIS IS FIRST YEAR OF OPERATION; THE APPELLANT DOES NOT HAVE ITS OWN MANUFACTURING FACILITIES AND IS PURELY OPERATIN G IN DOMESTIC MARKET. IN OUR CONSIDERED VIEW, THESE FAC TORS CERTAINLY WOULD HAVE SUBSTANTIALLY IMPACT ON THE PR OFIT MARGIN OF THE ASSESSEE. THEREFORE, FINDINGS OF THE AUTHORI TIES BELOW CANNOT BE SUSTAINED UNDER THE FACTS AND CIRCUMSTANC ES OF THE PRESENT CASE. THE IMPUGNED ORDER IS THEREFORE HERE BY SET- ASIDE AND THE ISSUE OF COMPUTATION OF ARMS LENGTH PRICE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER WOULD REFER THE MATTER TO THE TPO FOR MAKIN G SEARCH FOR FRESH SET OF COMPARABLES, WHO ACCORDINGLY, RECOMMEN D THE ITA NO.-1669/DEL/2017 15 COMPUTATION OF ARM'S LENGTH PRICE AFRESH. THE GROUN DS RAISED BY THE ASSESSEE ARE ALLOWED IN TERMS INDICATED HERE INABOVE FOR STATISTICAL PURPOSE ONLY. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSE. `ORDER WAS PRONOUNCED IN THE OPEN COURT ON 13 TH OCTOBER. 2021. SD/- SD/- [R.K. PANDA] [KUL BHARAT] ACCOUNTANT MEMBER JUDICIAL MEMBE R DELHI; DATED: 13/10/2021. F{X~{T F{X~{T F{X~{T F{X~{TBT| T BT| T BT| T BT| T? ?? ? FA FA FA FA P.S P.SP.S P.S COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI