Elica Pb India Private Limited, Pune V. Deputy Commissioner of Income-tax, Circle - 1(2), Pune

ITA 1697/PUN/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5258 (ITAT-PUNE)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 20-06-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 29-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMOL KAMAT
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction
• Section: 271(1)(c); 143(3); 92D; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 16 9 7 /P U N/201 8 / ASSESSMENT YEAR : 20 1 4 - 1 5 ELICA PB INDIA PVT. LTD., 37/1/1, KONDHWA PISOLI RD, TAL - HAVELI, PUNE 41 1060 . / APPELLANT PAN: AA CCE3614M VS. THE DY . COMMISSIONER OF INCOME TAX CIRCLE 1 (2) , PUNE . / RESPONDENT ASSESSEE BY : S /S HRI GAUTAM JAIN AND DARPAN KIRPALANI REVENUE BY : SHRI AMOL KAMAT / DATE OF HEARING : 20 . 0 6 . 201 9 / DATE OF PRONOUNCEMENT: 19 . 0 8 .201 9 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY ASSESSEE IS AGAINST THE ORDER OF D CIT , CIRCLE - 1 (2) , PUNE , DATED 2 4 . 09 .201 8 RELATING TO ASSESSMENT YEAR 20 1 4 - 1 5 PASSED UNDER SECTION 143(3) R.W.S. 144C(1 3 ) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASS ESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - THE GROUNDS MENTIONED HEREIN ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1 . THAT THE ORDER OF THE LEARNED DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 2(1) ('ASSESSING OFFICER' OR 'LEARNED AO'), WHICH IS IN CONFOR MITY WITH THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL, BANGALORE ('DRP', 'LEARNED ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 2 PANEL'), AND THE ORDER OF THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX (TRANSFER PRICING - 1(2)) ('LEARNED TPO') TO THE EXTENT PREJUDICIAL TO THE APPELLANT, IS BAD IN LAW AND LIABLE TO BE QUASHED. ADJUSTMENT TO PURCHASE AND SALE OF RAW MATERIALS FROM ASSOCIATED ENTERPRISES ('AES') (MANUFACTURING SEGMENT) 2 . THAT THE LEARNED AO AND THE LEARNED PANEL ERRED BOTH IN FACTS AND LAW IN CONFIRMING THE ACTION OF THE LEARNED TPO OF M AKING AN ADJUSTMENT TO THE TRANSFER PRICE OF THE APPELLANT WITH RESPECT TO THE PURCHASE AND SALE OF RAW MATERIALS FROM ITS ASSOCIATED ENTERPRISES ('AES') BY RS.7,78,49,035 HOLDING THAT THE INTERNATIONAL TRANSACTIONS DO NOT SATISFY THE ARM'S LENGTH PRINCIPL E ENVISAGED UNDER THE INCOME TAX ACT, 1961 (THE 'ACT') AND IN DOING SO GROSSLY ERRED IN: 2 . 1 . UPHOLDING THE USE OF DATA WHICH WAS NOT CONTEMPORANEOUS AND WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF CONDUCTING THE TRANSFER PRICING STUDY BY THE A SSESSEE. 2 . 2 . DISREGARDING ALL THE DATA/EVIDENCES THAT WERE REQUESTED AND DULY SUBMITTED AND PLACED ON RECORD THROUGHOUT THE TRANSFER PRICING ASSESSMENT AND MAKING A MENTION IN THE TRANSFER PRICING ORDER THAT NO RELEVANT DATA WAS SUBMITTED BY THE ASSESSEE. 2 . 3 . GI VING THE ASSESSEE INADEQUATE TIME AND OPPORTUNITY TO BE HEARD AND COERCING THE APPELLANT TO MEET THE UNREASONABLE DEADLINES THROUGHOUT THE TP ASSESSMENT INCLUDING A DURATION OF ONLY ONE DAY TO REPLY TO SHOW CAUSE NOTICE ISSUED BY HER LEARNED SELF. 3 . THAT TH E LEARNED PANEL / TPO ERRED IN DISREGARDING THE INTERNAL/SEGMENTAL COST PLUS METHOD OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS APPLIED BY THE ASSESSEE WITH RESPECT TO THE MANUFACTURING SEGMENT. 3 . 1 . WITHOUT PREJUDICE, THE LEARNED PANEL/TPO HAS COMPLETELY D ISREGARDED THE EXTERNAL AUDIT CONDUCTED BY THE APPELLANT WITH RESPECT TO THE SEGMENTAL RESULTS OF THE COMPANY THEREBY SUBSEQUENTLY DISREGARDING THE CERTIFICATION PROVIDED BY THE EXTERNAL CHARTERED ACCOUNTANT ON THE PRETEXT THAT THE CHARTERED ACCOUNTANT IS NOT AN INDEPENDENT PARTY SEPARATE FROM THE COMPANY. 3 . 2 . WITHOUT PREJUDICE, THE LEARNED PANEL/TPO HAS ERRED IN LAW AND ON FACTS IN CONTRADICTING HER OWN STAND WITH RESPECT TO THE EXTERNAL AUDITOR BY ON ONE HAND USING THE FINANCIALS CERTIFIED BY THE EXTERNAL AU DITOR AS BASIS TO CALCULATE PROFITABILITY OF THE COMPANY AND ON THE OTHER HAND REJECTING THE SEGMENTAL RESULTS OF THE SAME COMPANY CERTIFIED BY THE SAME EXTERNAL AUDITOR. 3 . 3 . WITHOUT PREJUDICE, THE LEARNED PANEL/TPO HAS ERRED IN DISREGARDING THE PRODUCT WISE CONTRIBUTION SHEET PROVIDED BY THE APPELLANT WHICH FORMS THE BASIS FOR THE CALCULATION OF SEGMENTAL RESULTS OF THE COMPANY. 3 . 4 . WITHOUT PREJUDICE, THE LEARNED PANEL/TPO HAS ERRED IN DISREGARDING THE OECD GUIDELINES AND JUDICIAL PRECEDENTS PLACED ON RECORD AT THE TIME OF THE TRANSFER PRICING ASSESSMENT STAGE WHICH SUPPORT THE CASE OF THE APPELLANT WITH RESPECT TO APPLICATION OF SEGMENTAL COST PLUS METHOD TO BENCHMARK TRANSACTIONS OF THE APPELLANTS MANUFACTURING SEGMENT. ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 3 4 . THE LEARNED AO / PANEL / TPO ERRED IN DI SREGARDING THE SEARCH STRATEGY ADOPTED BY THE ASSESSEE AND APPLYING THE TRANSACTIONAL NET MARGIN METHOD (TNMM') THEREBY UNDERTA KING FRESH SEARCH FOR EXTERNAL COMPARABLES, IN COMPLETING THE TRANSFER PRICING ASSESSMENT. 4 . 1 . WITHOUT PREJUDICE IN CONDUCTING THE F RESH SEARCH, THE LEARNED PANEL/TPO HAVE ERRED IN LAW AND ON FACTS, IN FAILING TO COMPREHEND THE FUNCTIONAL PROFILE OF ELICA AND SELECTING NON - COMPARABLE COMPANIES IN THE LIST OF COMPARABLE COMPANIES SUCH AS : A ) ACRYSIL LTD. B ) JSL LIFE STYLE LTD. 4 . 2 . WITHOUT PREJU DICE IN CON DUCTING THE FRESH SEARCH, THE LEARNED AO/ TPO HAVE ERRED IN LAW AND ON FACTS, IN FAILING TO COMPREHEND THE FUNCTIONAL PROFILE OF ELICA AND THEREBY ARBITRARILY REJECTING THE COMPANIES PROPOSED AS COMPARABLES BY THE APPELLANT SUCH AS: A ) FRANKE FABE R INDIA LTD. B ) KAFF APPLIANCES (INDIA) PVT. LTD . C ) BAJORIA APPLIANCES PVT. LTD. D ) GLEN APPLIANCES PVT. LTD. E ) NIRLEP APPLIANCES LTD. 4 . 3 . WITHOUT PREJUDICE, IN CONDUCTING THE FRESH SEARCH, THE LEARNED PANEL/ TPO HAVE ERRED IN LAW AND ON FACTS BY RESORTING TO CHERRY PI CKING OF HIGH MARGIN COMPARABLES. 4 . 4 . WITHOUT PREJUDICE THE LEARNED PANEL/ TPO HAVE ERRED IN LAW AND ON FACTS BY REJECTING THE COMPARABLE GORANI INDUSTRIES LTD. AS A PERSISTENT LOSS MAKER EVEN THOUGH IT IS EARNING PROFITS IN THE ASSESSMENT YEAR 2014 - 15. 4 . 5 . WITH OUT PREJUDICE, IN CONDUCTING THE FRESH SEARCH, THE LEARNED PANEL/TPO HAS ERRED IN LAW AND ON FACTS BY MANIPULATING THE TURNOVER FILTER APPLIED BY HER LEARNED SELF THRICE DURING THE TP ASSESSMENT IN ORDER TO SELECT THE HIGHER MARGIN COMPANIES IN THE COMPARA BLE SET OF THE ASSESSEE. 4 . 6 . WITHOUT PREJUDICE, THE LEARNED AO/TPO HAVE ERRED IN LAW AND FACTS BY NOT APPLYING THE TNMM METHOD OF BENCHMARKING INTERNATIONAL TRANSACTIONS TO THE RELATED PARTY SEGMENT AND UNRELATED PARTY SEGMENT OF THE ASSESSEE WHEN RESULTS OF SUCH SEGMENTAL BIFURCATION WERE PROVIDED BY THE ASSESSEE. 5 . WITHOUT PREJUDICE, THE LEARNED AO/ TPO ERRED IN NOT RESTRICTING THE ADJUSTMENTS PROPORTIONATE TO INTERNATIONAL TRANSACTIONS AND THEREFORE ERRED IN DENYING THE PROPORTIONATE ADJUSTMENT. 6 . T HE LEARNED TPO ERRED IN DIRECTING THE LEARNED AO TO INITIATE THE PENALTY PROCEEDINGS AS PER SECTION 271AA AND 27 1 G FOR THE FAILURE TO KEEP AND MAINTAIN ANY SUCH INFORMATION AND DOCUMENTS AS REQUIRED BY SUB SECTION (1) OR SUB SECTION (2) OF SECTION 92D AND FOR FAILUR E TO FURNISH INFORMATION OR DOCUMENT UNDER SECTION 92D OF THE ACT RESPECTIVELY. 7 . THE LEARNED TPO ERRED IN DIRECTING THE LEARNED AO TO INITIATE THE PENALTY PROCEEDINGS AS PER SECTION 271(1)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME. ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 4 8 . THAT THE LEAR NED AO ERRED IN CONSEQUENTLY LEVYING INTEREST UNDER SECTION 234 B OF THE ACT. 3. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FILED THE RETURN OF INCOME DECLARING TOTAL LOSS OF ( - ) 2,16,96,798/ - . THE ASSESSEE WAS EGAGED IN THE BUSINESS OF MANUFAC TURING AND TRADING OF HOUSEHOLD APPLIANCES SUCH AS KITCHEN HOODS, BUILT IN HOBS, COOKING RANGES, COOK - TOPS, ETC. THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS AND HENCE, REFERENCE WAS MADE UNDER SECTION 92CA(1) OF THE ACT. THE TRANSFER PRICING OFFICER (TPO) TOOK UP THE TRANSFER PRICING PROCEEDINGS AND NOTED THAT ELICASPA, ITALY FORMED A JOINT VENTURE ELICA P B INDIA PVT. LTD. IN INDIA ON 16.04.2010. THE MANUFACTURING UNIT WAS LOCATED IN PUNE, INDIA. THE ASSESSEE WAS NOT ONLY MANUFACTUR ING THE GOODS BUT ALSO IMPORTING RAW MATERIAL, COMPONENTS AND IN CERTAIN CASES, THE ENTIRE UNITS FROM THE IR ASSOCIATED ENTERPRISES , WHICH WERE REQUIRED TO MANUFACTURE THE PRODUCTS. THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES, WHICH ARE TABULATED UNDER PARA 4 AT PAGE 2 OF THE ORDER OF TPO. THE BENCHMARKING ANALYSIS UNDERTAKEN BY THE ASSESSEE USING CPM METHOD FOR MANUFACTURING FUNCTIONS WAS FOUND TO BE NOT CORRECT METHOD TO BE APPLIED. THE TPO SHOW CAUSE D THE ASSESSEE IN THIS REGARD AND WAS OF THE VIEW THAT CPM METHOD WAS TO BE REJECTED AND TNMM METHOD WAS TO BE CONSIDERED AS MOST APPROPRIATE METHOD. THE TPO ALSO MODIFIED THE FILTERS TO BE APPLIED AND SELECTED CERTAIN CONCERNS TO BE COMPARABLE WITH THE A SSESSEE AND SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. THE TPO REJECTED CPM METHOD IN FINAL ANALYSIS IN THE ABSENCE OF DATA BEING AVAILABLE OF COSTS AND BOTH DIRECT AND INDIRECT COSTS TO BE ALLOCATED TO RELATED AND NON RELATED TRANSACTIONS. THE ASSESS EE FAILED TO SUBMIT DETAILS BEFORE THE TPO DESPITE SEVERAL OPPORTUNITIES BEING ALLOWED AND AS THE ASSESSEE HAD FAILED TO COMPLY WITH THE CONDITIONS OF APPLICATION OF CPM ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 5 METHOD AS MOST APPROPRIATE METHOD , T HE BENCHMARKING ANALYSIS CARRIED ON BY ASSESSEE WA S REJECTED. THE PLEA OF ASSESSEE THAT CPM METHOD WAS APPLIED IN THE PREVIOUS YEAR WAS ALSO REJECTED ON THE GROUND THAT NO VERIFICATION IN THIS REGARD WAS MADE IN ANY OF THE ASSESSMENT PROCEEDINGS. THE TPO ALSO DID NOT FIND FAVOUR WITH THE GROSS PROFIT MA RGINS COMPUTED BY THE ASSESSEE AND HELD THAT THE SEGMENTAL PREPARED BY IT COULD NOT BE RELIED UPON. FURTHER, EVEN THE USE OF APPLICATION OF INTERNAL TNMM METHOD BY ASSESSEE WAS REJECTED ON THE GROUND THAT NON - ASSOCIATED ENTERPRISE SEGMENT WAS SHOWING LOSS ES AND THE ASSOCIATED ENTERPRISE SEGMENT WAS SHOWING PROFITS. THE DIFFERENCES IN PLI AS PER THE TPO INDICATED THE ABNORMALITY ON THE GROUND THAT NO PRUDENT BUSINESSMAN WOULD UNDERTAKE BUSINESS WHERE THE DOMESTIC SEGMENT WAS INCURRING LOSSES. THE TPO WAS OF THE VIEW THAT TNMM METHOD WAS THE MOST APPROPRIATE METHOD AND THE SAME SHOULD BE APPLIED. THE ASSESSEE RAISED OBJECTIONS TO SEARCH ANALYSIS MADE BY THE TPO AND IT ALSO CARRIED OUT AN INDEPENDENT SEARCH OF ITS OWN. AFTER CONSIDERING THE COMMENTS AND OB JECTIONS OF ASSESSEE, THE TPO IN FINAL ANALYSIS SELECTED FOUR CONCERNS AS COMPARABLE WITH THE ASSESSEE WHOSE MEAN MARGINS WORKED OUT TO 10.72%. THE TPO THUS, PROPOSED AN ADJUSTMENT OF 6,35,19,586/ - . THE ASSESSING OFFICER ISSUED DRAFT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP), WHICH ISSUED CERTAIN DIRECTIONS. THE ASSESSING OFFICER / TPO ENHANCED TOTAL ADJUSTMENT TO 7,78, 49,035/ - AS THE AVERAGE MARGINS OF COMPARABLES AS PER DIRECTIONS OF DRP WORKED OUT TO 12.70% AFTER EXCLUDING TWO CONCERNS FROM THE FINAL LIST OF COMPARABLES. THE ASSESSING OFFICER THUS, MADE AN ADJUSTMENT OF 7.78 CRORES, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 6 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT GROUND OF APPEAL NO.1 RAISED BY ASSESSEE WAS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. FURTHER, THE GROUND OF APPEAL NO.3 WAS NOT P RESSED. THE GROUNDS OF APPEAL NO.6 AND 7 WERE POINTED OUT TO BE PREMATURE IN NATURE AND THE ISSUE RAISED IN GROUND OF APPEAL NO.8 AGAINST CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT WAS CLAIMED TO BE CONSEQUENTIAL. THE ISSUE RAISED IN GROUND OF AP PEAL NO.2 WAS AGAINST TRANSFER PRICING ADJUSTMENT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US MADE SPECIFIC REFERENCE TO THE GROUND OF APPEAL NO.4.6 AND ALSO PRESSED GROUNDS OF APPEAL NO.4.1 AND 4.4. THE ISSUE RAISED IN GROUND OF AP PEAL NO. 5 WAS THAT ADJUSTMENT, IF ANY, SHOULD BE RESTRICTED ONLY TO INTERNATIONAL TRANSACTIONS AND NOT AT THE ENTITY LEVEL. HE FURTHER POINTED OUT THAT IN CASE THESE GROUNDS OF APPEAL ARE DECIDED, THEN THE OTHER GROUNDS OF APPEAL WOULD BECOME ACADEMIC IN NATURE I.E. GROUNDS OF APPEAL NO.4.2, 4.3 AND 4.5. 5. COMING TO THE ISSUE RAISED IN GROUND OF APPEAL NO.4.6, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FIRST TRIED TO PRESS UPON AS TO WHICH METHOD IS TO BE APPLIED I.E. INTERNAL COST PLUS MET HOD OR INTERNAL TNMM METHOD OR EXTERNAL TNMM METHOD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS ESSENTIALLY A DOMESTIC SELLER OF HOUSEHOLD GOODS AND WAS IMPORTING RAW MATERIAL, MANUFACTURING AND SELLING THE SA ME IN THE DOMESTIC MARKET OR IMPORTING RAW MATERIAL, ASSEMBLING THE SAME AND SELLING THE SAME IN DOMESTIC MARKET. WITH REGARD TO APPLICATION OF INTERNAL COST PLUS METHOD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US POINTED OUT THAT TH E SAME IS NOT PRESSED NOW. HOWEVER, DURING THE TP PROCEEDINGS, THE ASSESSEE HAD PLACED RELIANCE ON INTERNAL TNMM METHOD TO BE APPLIED. HOWEVER, THE TPO APPLIED EXTERNAL TNMM ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 7 METHOD AND COMPARED THE MARGINS OF ASSESSEE AT 1.94% WITH THE MEAN MARGINS OF CO MPARABLES AT 10.72%. THE ASSESSEE HAD SUBMITTED THE SEGMENTAL FOR THE APPLICATION OF INTERNAL TNMM METHOD I.E. RELATED PARTY TRANSACTIONS AND UNRELATED PARTY TRANSACTIONS. IT WAS STRESSED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE U S THAT NO OPPORTUNITY WAS ALLOWED BY THE TPO BEFORE REJECTING THE SAID CLAIM. OUR ATTENTION WAS DRAWN TO THE ORDER OF TPO AT PAGES 28 TO 30, WHEREIN THE SUBMISSIONS OF ASSESSEE VIS - - VIS USE OF INTERNAL TNMM METHOD ARE REFERRED. THEN, THE LEARNED AUTHORI ZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT REPLY IN THIS REGARD WAS GIVEN ON 10.10.2017 AND THE TPOS ORDER WAS PASSED ON 20.10.2017. 6. COMING TO THE SECOND ASPECT OF APPLICATION OF EXTERNAL TNMM METHOD, WHEREIN GROUNDS OF APPEAL NO.4.1 AND 4.4 ARE PRESSED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TWO COMPARABLES IN THE FINAL ANALYSIS I.E. ACRYSIL LTD. AND JSL LIFE STYLE LTD. WERE TO BE EXCLUDED. WITH REGARD TO ACRYSIL LTD., THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID CONCERN DEALT IN KITCHEN SINKS AND FAUCETS, WHEREAS THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF KITCHEN HOUSEHOLD GOODS. OUR ATTENTION WAS DRAWN TO PAGE 16 OF ORDER OF DRP, WHEREIN THE RAW MATERIAL OF SAID COMPAN Y WAS QUARTZ, WHICH WAS NOT COMPARABLE TO THE ASSESSEE CONCERN, WHICH WAS ENGAGED IN THE MANUFACTURING OF KITCHEN APPLIANCES. HE STRESSED THAT THERE WAS NO COMPARISON BETWEEN APPLIANCES AND SINKS. COMING TO NEXT CONCERN JSL LIFESTYLE LTD., THE LEARNED AU THORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID CONCERN WAS ENGAGED IN DIFFERENT PRODUCTS I.E. IT WAS ENGAGED IN LIFESTYLE PRODUCTS AND NO SEGMENTAL WERE ALSO AVAILABLE. FURTHER, IT WAS ALSO CARRYING ON R&D ACTIVITY, WHEREAS THE ASSESSE E WAS ONLY ENGAGED IN MANUFACTURING AND SALE OF KITCHEN ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 8 APPLIANCES. IT WAS BROUGHT TO HIS KNOWLEDGE THAT IN CASE TWO CONCERNS ARE EXCLUDED, THEN NO CONCERN WOULD BE LEFT IN THE FINAL LIST OF COMPARABLES. IN THIS REGARD, HE POINTED OUT THAT GROUND OF APPE AL NO.4.2 NEEDS TO BE ADJUDICATED I.E. FOR INCLUSION OF GORANI INDUSTRIES LTD. ADMITTEDLY, THE SAID CONCERN WAS FUNCTIONALLY COMPARABLE TO THE ASSESSEE, BUT IT WAS REJECTED ON THE GROUND THAT THE SAID CONCERN WAS LOSS MAKING. IT WAS POINTED OUT BEFORE US THAT THE SAID CONCERN GORANI INDUSTRIES LTD. WAS NOT PERSISTENT LOSS MAKING. FURTHER, THE TPO HAS POINTED OUT THAT THE SAID CONCERN HAD OPERATIONAL LOSSES IN ASSESSMENT YEARS 2012 - 13 TO 2014 - 15. OUR ATTENTION WAS DRAWN TO SUBMISSIONS OF ASSESSEE BEFORE THE DRP AT PAGES 14 AND 15 OF ORDER, WHEREIN IN ASSESSMENT YEAR 2014 - 15, THERE WERE NO LOSSES OF SAID CONCERN. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT THOUGH GORANI INDUSTRIES LTD. HAD NEGLIGIBLE PROFITS, WHICH IS ALSO MENTION ED BY DRP AT PAGE 19, BUT EVEN THE MARGINS OF ASSESSEE WERE ALSO LOW I.E. 1.94%. 7. COMING TO THE LAST GROUND OF APPEAL I.E. GROUND OF APPEAL NO.5, WHICH IS BEING PRESSED, IT WAS POINTED OUT THAT TP ADJUSTMENT, IF ANY, IS TO BE RESTRICTED TO INTERNATIONAL TRANSACTIONS ONLY. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. [TS - 590 - HC - 2015(BOM) - TP] AND IN THE CASE OF CIT VS. FIRESTONE INTERNATIONAL PVT. LTD. REPORTED IN 378 ITR 558 (BOM). 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. FIRST OF ALL, GROUND OF APPEAL NO.1 RAISE D BY ASSESSEE IS GENERAL IN NATURE AND THE SAME ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 9 DOES NOT REQUIRE ANY ADJUDICATION. THE GROUND OF APPEAL NO.3 IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. THE GROUNDS OF APPEAL NO.6 AND 7 ARE PREMATURE AND HENCE, THE SAME ARE ALSO DISMI SSED. THE GROUND OF APPEAL NO.8 AGAINST CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT IS CONSEQUENTIAL, HENCE THE SAME IS ALSO DISMISSED. 10. VIDE GROUND OF APPEAL NO.2, THE ASSESSEE HAS RAISED THE ISSUE OF TRANSFER PRICING ADJUSTMENT MADE IN THE HA NDS OF ASSESSEE WITH RESPECT TO PURCHASE AND SALE OF RAW MATERIAL FROM ASSOCIATED ENTERPRISES AT 7.78 CRORES APPLYING ARM'S LENGTH PRINCIPLES. IN THIS REGARD, THE ASSESSEE HAS FIRST PRESSED GROUND OF APPEAL NO.4.6 I.E. AGAINST THE METHOD WHICH IS TO BE APPLIED. IN THE TRANSFER PRICING REPORT, THE ASSESSEE HAD APPLIED INTERNAL COST PLUS METHOD, WHICH IS NOT PRESSED BEFORE US. DURING TP PROCEEDINGS, THE ASSESSEE HAD URGED THE INTERNAL TNMM METHOD BE APPLIED. THE ASSESSEE HAD FURNISHED CERTAIN INFORMATIO N IN THE FORM OF SEGMENTAL FOR APPLICATION OF INTERNAL TNMM METHOD. THE TPO DID NOT FIND FAVOUR WITH THE AFORESAID SEGMENTAL BETWEEN THE RELATED AND UNRELATED SEGMENTALS OF TRANSACTIONS , ESPECIALLY WHERE THERE WAS LOSS IN ONE SEGMENT AND PROFIT IN ANOTHER . THE PLEA OF ASSESSEE BEFORE US IS THAT NO OPPORTUNITY WAS GIVEN BY THE TPO BEFORE REJECTING THE SAME. HOWEVER, WE FIND NO MERIT IN THE SAID PLEA OF ASSESSEE. IN THIS REGARD, WE MAY REFER TO PAGES 7 TO 9 OF TPOS ORDER, WHEREIN OPPORTUNITIES GIVEN TO T HE ASSESSEE HAVE BEEN TABULATED AND THE ASSESSEES CONTENTIONS HAVE BEEN CONSIDERED. EVEN THE LAST REPLY GIVEN ON 10.10.2017 HAS BEEN CONSIDERED BEFORE PASSING THE ORDER ON 20.10.2017. THE TPO HAS ALSO AT PAGES 28 TO 30 OF ITS ORDER DEALT WITH THE REPLY OF ASSESSEE IN THIS REGARD. FURTHER IN THE ABSENCE OF PROPER SEGMENTAL BEING AVAILABLE, THERE WAS NO BASIS ON WHICH INTERNAL TNMM METHOD COULD BE APPLIED. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 10 FIND NO MERIT IN THE RELIANCE PLACED UPON BY THE ASSESSEE ON INTERNAL TNMM METHOD. 11. NOW, COMING TO THE NEXT ASPECT OF THE ISSUE I.E. MOST APPROPRIATE METHOD TO BE APPLIED, WHICH AS PER THE TPO, IN THIS CASE WAS EXTERNAL TNMM METHOD. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANC ES, WE FIND MERIT IN THE EXERCISE CARRIED ON BY THE TPO IN THIS REGARD, WHEREIN PROPER SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AT THE START OF PROCEEDINGS ITSELF AS TO WHY THIS METHOD SHOULD NOT BE APPLIED IN VIEW OF THE NATURE OF BUSINESS OF ASSESSEE , WHEREIN THE ASSESSEE WAS ENGAGED IN IMPORTING OF RAW MATERIAL AND IN SOME CASES, MANUFACTURING CERTAIN ITEMS AND SELLING THE SAME IN DOMESTIC MARKET OR IN SOME CASES, IMPORTING THEN ASSEMBLING AND SELLING IN THE DOMESTIC MARKET. THE HOUSEHOLD APPLIANCES FROM THE MANUFACTURING UNIT AT PUNE INCLUD ED KITCHEN HOODS, BUILT IN HOBS, COOKING RANGES, COOK - TOPS, ETC. THE MOST APPROPRIATE METHOD WHICH NEEDS TO BE APPLIED WA S THE TNMM METHOD. THE NEXT STEP IS IN ORDER TO DETERMINE WHETHER THE ARM'S LENGTH PRICE O F INTERNATIONAL TRANSACTIONS OF ASSESSEE, THE SELECTION OF COMPARABLES. FIRST OF ALL, THE TPO HAD SELECTED FOUR CONCERNS AS COMPARABLES WHOSE MEAN MARGINS WORKED OUT TO 10.72%. THE TPO HAS REVISED THE LIST OF COMPARABLES AND THE ONLY TWO CONCERNS REMAINE D IN THE FINAL LIST OF COMPARABLES I.E. ACRYSIL LTD. AND JSL LIFE STYLE LTD. THE ASSESSEE HAD SUGGESTED CERTAIN ADDITIONAL COMPANIES TO BE ACCEPTED AS COMPARABLES, WHICH W ERE NOT ACCEPTED BY THE TPO OR DRP AND THE SAME WERE REJECTED. 12. THE CASE OF AS SESSEE BEFORE US IS THAT SINCE IT WAS ENGAGED IN THE BUSINESS OF KITCHEN APPLIANCES, THE CONCERNS WHICH HAVE TO BE FINALLY SELECTED FOR COMPARISON SHOULD ALSO BE IN THE SIMILAR LINE OF BUSINESS. WITH REGARD TO ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 11 ACRYSIL LTD., THE LEARNED AUTHORIZED REPRESEN TATIVE FOR THE ASSESSEE HAS POINTED OUT THAT THE SAID CONCERN WA S ENGAGED IN THE MANUFACTURING OF SINKS AND FAUCETS AND THE RAW MATERIAL WHICH WAS USED FOR THEM WAS QUARTZ ; WHEREAS THE ASSESSEE WA S ENGAGED IN ABSOLUTELY DIFFERENT LINE OF MANUFACTURING I.E. KITCHEN APPLIANCES. WE FIND MERIT IN THE PLEA OF ASSESSEE THAT THERE IS NO COMPARISON BETWEEN KITCHEN APPLIANCES MANUFACTURED BY ASSESSEE AND SINK S MANUFACTURED BY ACRYSIL LTD. ACCORDINGLY, THE SAID CONCERN CANNOT BE SELECTED AS COMPARABLE TO THE ASSESS EE AND THE SAME IS REJECTED. 13. NOW, COMING TO THE FUNCTIONAL PROFILE OF JSL LIFESTYLE LTD. , WHEREIN THE SAID CONCERN WAS ENGAGED IN LIFESTYLE PRODUCTS, PRODUCTS RELATING TO PLUMBING, COOKWARE AND SMALL KITCHEN APPLIANCES. ANOTHER FACTOR TO BE KEPT IN M IND WA S THE RESEARCH AND DEVELOPMENT ACTIVITY CARRIED ON BY SAID CONCERN. THE QUESTION WHICH ARISES IS THAT WHERE A CONCERN IS ENGAGED IN PRODUCTS, SOME OF WHICH WE RE COMPARABLE TO THE PRODUCTS OF ASSESSEE COMPANY BUT IN THE ABSENCE OF SEGMENTAL S, THE RES ULTS OF SAID CONCERN C OULD BE APPLIED OR NOT. THE ANSWER TO THE SAME IS NO. IN THE ABSENCE OF SEGMENTAL BEING AVAILABLE AND THE PRODUCTS BEING DIFFERENT, THOUGH SOME OF THEM ARE COMPARABLE TO THE PRODUCTS DEALT IN BY THE ASSESSEE AND WHERE THE CONCERN WA S ALSO ENGAGED IN R&D ACTIVITY AS AGAINST THE ASSESSEE WHICH WA S NOT SO ENGAGED, THEN THERE IS NO MERIT IN INCLUDING THE MARGINS OF SAID CONCERN IN THE FINAL LIST OF COMPARABLES. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE THE SAME. 1 4. THE NEXT CONCERN FOR WHICH THE ASSESSEE HAS RAISED ARGUMENTS FOR ITS INCLUSION IS GORANI INDUSTRIES LTD. THE SAID CONCERN WAS SELECTED BY TPO IN THE INITIAL SHOW CAUSE NOTICE BUT IN FINAL ANALYSIS, WAS REJECTED ON THE GROUND THAT IT WAS PERSISTENT LOSS MAKER. THE OBSERVATIONS OF TPO IN THIS REGARD ARE ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 12 THAT THE SAID CONCERN HAD INCURRED OPERATIONAL LOSSES IN ASSESSMENT YEARS 2012 - 13 TO 2014 - 15. THE ASSESSEE HAD OBJECTED TO THE SAME BEFORE THE DRP AND POINTED OUT THAT THE TPO HAD INCORRECTLY CALCULATED THE MARGINS OF SAID CONCERN AS IT HAD INCLUDED THE FINANCE COSTS AS PART OF OPERATING EXPENSES FOR ASSESSMENT YEAR 2014 - 15. IN CASE THE CORRECTED MARGINS OF SAID CONCERN ARE WORKED OUT, THEN OP/OR WORKS OUT TO 0.13%. THE DRP DID NOT ACCEPT THE PLEA OF AS SESSEE ON THE GROUND THAT THE SAID CONCERN HAD SHOWN MARGINAL INCOME. THE SAID CONCERN WAS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT WAS ENGAGED IN MANUFACTURING AND SALE OF GLASS, GAS , COOK TOPS, CHIMNEYS, ETC. THE SAID CONCERN WAS FUNCTIONALLY COMP ARABLE TO THE ASSESSEE AND FOR THE INSTANT ASSESSMENT YEAR HAD SHOWN MARGINAL PROFITS THOUGH OP/OR WAS ONLY 0.13% ; BUT THERE IS NO MERIT IN REJECTING THE SAID CONCERN EITHER ON THE GROUND IT WAS PERSISTENT LOSS MAKING, WHICH IT WAS NOT, AND EVEN ON THE GRO UND THAT IT HAD MARGINAL PROFITS. THE ASSESSEE ON THE OTHER HAND, HAD SHOWN MARGINS OF 1.94%. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO INCLUDE GORANI INDUSTRIES LTD. AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. IN SUCH SITUATION, WHERE THE MARGINS SHOWN BY ASSESSEE ARE AT 1.94%, THEN NO ADJUSTMENT NEEDS TO BE MADE IN THE HANDS OF ASSESSEE ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF PURCHASE OF RAW MATERIAL TO BE MADE IN THE HANDS OF ASSESSEE. IN ANY CASE, THE ADJUSTMENT, IF A NY, IS TO BE RESTRICTED TO THE VALUE OF INTERNATIONAL TRANSACTIONS AND NOT TO THE ENTITY TRANSACTION. 15. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF THYSS EN KRUPP INDUSTRIES INDIA PVT. LTD. (SUPRA) HAS LAID DOWN THE SAID PROPOSITION AND MERELY BECAUSE AN APPEAL HAS BEEN FILED AGAINST ONE OF THE JUDGMENTS OF HONBLE BOMBAY HIGH COURT IN CIT VS. FIRESTONE INTERNATIONAL PVT. LTD. (SUPRA) HAS BEEN DISMISSED DOE S NOT MEAN THAT THE PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH ITA NO. 16 9 7 /P U N/20 1 8 ELICA PB INDIA PVT. LTD. 13 COURT DOES NOT STAND. WE FIND NO MERIT IN THE ORDER OF DRP IN THIS REGARD. IN VIEW THEREOF, THE GROUNDS OF APPEAL NO.4.1, 4.4 , 4.6 AND 5 ARE ALLOWED AND OTHER ISSUES WITH REGARD TO TRAN SFER PRICING ARE NOT ADJUDICATED BEING ACADEMIC IN NATURE. THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE THUS, PARTLY ALLOWED. 16 . IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 19 TH DAY OF AUGUST , 201 9 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 19 TH AUGUST , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP - 3, MUMBAI ; 4. THE CIT (IT&TP) , PUNE ; 5. THE DR C , ITAT, PUNE; 6. GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE