Weir Minerals (India) Private Ltd, New Delhi V. Deputy Commissioner of Income-tax, New Delhi

ITA 2021/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3222 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 26-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K CHAUDHARY
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I2 NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT & SHRI K. NARSIMHA CHARY, JUDICIAL MEMBER ITA NO.-2021/DEL/2015 ( ASSESSMENT YEAR: 2010-11) WEIR MINERALS (INDIA) PRIVATE LTD,. NO. 1212-15, 12 TH FLOOR, DLF TOWER B, PLOT NO. 11, JASOLA DISTRICT CENTRE, SOUTH DELHI, NEW DELHI. AAAC10519D VS DCIT CIRCLE 27(2) NEW DELHI. ASSESSEE BY SH. MANONEET DALAL, AR, SH. VISHU GOEL, AR REVENUE BY SH. H.K. CHAUDHARY, CIT DR ORDER PER SHRI K.N. CHARY, J.M. AGGRIEVED BY THE ASSESSMENT ORDER DATED 23.01.2015 THAT WAS FRAMED PURSUANT TO THE DIRECTIONS OF THE LD. DI SPUTE RESOLUTION PANEL-II, NEW DELHI (HEREINAFTER FOR SHO RT CALLED AS DRP) PASSED ON 2.12.2014, ASSESSEE PREFERRED THIS APPEAL MAINLY CHALLENGING THE REJECTION OF ONE SHROFFS ENGINEERIN G LIMITED AS A DATE OF HEARING 09.11.2017 DATE OF PRONOUNCEMENT 23.11.2017 2 ITA NO. 2021/DEL/2015 COMPARABLE COMPANY TO THE MANUFACTURING SEGMENT OF THE ASSESSEE. LD. DRP REJECTED THIS COMPANY ON THE GRO UND THAT THE LD. TPO DID NOT HAVE THE OPPORTUNITY TO ANALYZE THE ANNUAL REPORT OF SHROFFS ENGINEERING LIMITED. 2. RELEVANT FACTS NECESSARY FOR DISPOSAL OF THIS AP PEAL ARE THAT THE ASSESSEE COMPANY INCORPORATED ON 28.09.1992 IS A SUBSIDIARY OF WEIR MINERALS AUSTRALIA LIMITED, WHICH IS A SUBS IDIARY OF WEIR GROUP PLC., UK. ASSESSEE IS ENGAGED IN THE MANUFAC TURING AND SALE OF PUMPS TO ASSOCIATED ENTERPRISES (AES) AND N ON-AES, AND ALSO PROVIDES CONVERSION OF DRAWING SERVICES PREDOM INANTLY TO AES INASMUCH AS 96% OF THE REVENUE IS DERIVED FROM AES, WHEREAS 4% OF THE REVENUE IS DERIVED FROM NON-AES. ASSESSEE RE CEIVES ENGINEERING DRAWINGS IN AUTOCAD 2D FORMAT FOR UP-GR ADATION INTO 3D FORMAT WITH THE HELP OF SOFTWARE. TRANSACT IONAL NET MARGIN METHOD (TNMM) WAS SELECTED AS THE MOST APPRO PRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTI ONS WITH APPLICATION OF OPERATING MARGIN ON COST AS THE APPR OPRIATE PROFIT LEVEL INDICATOR FOR THE MANUFACTURING AND SHARED SE RVICES SEGMENTS AND IN THIS REGARD THE ASSESSEE HAS SELECT ED 11 3 ITA NO. 2021/DEL/2015 COMPANIES AS COMPARABLE TO THE MANUFACTURING ACTIVI TY PERFORMED. ACCORDING TO THE ASSESSEE THE AVERAGE O PERATING MARK- UP ON COST EARNED BY THE COMPARABLE COMPANIES IN TH E MANUFACTURING SEGMENT WAS 10.44%, WHEREAS THE ASSES SEE HAD EARNED THE MARGIN OF 8.68%, AS SUCH, THE TRANSACTIO NS ARE CONCLUDED TO BE AT ARMS LENGTH IN THE TP REPORT. ON THIS ASPECT THE TPO OPINED THAT THE COMPANIES REJECTED BY THE A SSESSEE IN THE COURSE OF QUALITATIVE ANALYSES WERE POSSIBLY SUITAB LE COMPARABLES AND AFTER ANALYZING THE SAME, HE PROPOSED 10 COMPAR ABLES TO BE USED TO BENCH MARK THE TRANSACTION. AFTER CONSIDER ING THE PROPOSALS OR OBJECTIONS FROM THE ASSESSEE, OUT OF 1 1 COMPARABLES SELECTED BY THE ASSESSEE, TPO REJECTED FOUR COMPARA BLES NAMELY BEACON INDUSTRIES & PUMPS LTD., SPX FLOW TECHNOLOGY PVT. LTD., SHROFFS ENGINEERING LTD. AND SELECTED SEVEN COMPARA BLES SUGGESTED BY THE ASSESSEE. TPO ADDED FOUR MORE COM PARABLES NAMELY FISHER SANMAR LTD., TYCO SANMAR LTD., VANAZ ENGINEERS LTD. AND DELPHI TVS LTD. AND FINALLY SELECTED 11 CO MPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACTION, AND ULTIMA TELY MADE AN ADJUSTMENT OF RS. 2,34,26,767/- IN THE SEGMENT OF S ALE OF FINISHED GOODS. WHEN THE MATTER WAS CARRIED BY THE ASSESSEE TO THE DRP, 4 ITA NO. 2021/DEL/2015 LD. DRP RETURNED A FINDING THAT THE COMPARABLES SEL ECTED BY THE TPO NAMELY FISHER SANMAR LTD., TYCO SANMAR LTD., VA NAZ ENGINEERS LTD. AND DELPHI TVS LTD. ARE NOT SUITABLE COMPARABLES AND DIRECTED TO EXCLUDE THEM. IN THE SAME PROCESS LD. DRP WHILE DEALING WITH SHROFFS ENGINEERING LTD. OBSERVED THAT THE TPO HAD NO OCCASION TO CONSIDER THIS COMPANY IN THE TP PROC EEDINGS, AS SUCH, THIS COMPANY SHOULD NOT BE TAKEN AS A COMPARA BLE IN THIS CASE. HENCE, THE ASSESSEE IS BEFORE US CHALLENGING THIS FINDING OF THE LD. DRP, BASING ON WHICH THE AO PASSED THE ORDE R DATED 23.01.2015. 3. IT IS THE ARGUMENT OF THE LD. AR THAT INSOFAR AS THE FUNCTIONAL PROFILE OF ASSESSEE AND THE SHROFFS ENGINEERING LTD . IS CONCERNED, THERE IS NO DISPUTE EITHER BY THE TPO OR DRP, BUT T HE LD. TPO REJECTED THIS AS A COMPARABLE ONLY ON THE GROUND TH AT THE CURRENT YEAR DATA WAS NOT AVAILABLE IN THE PUBLIC DOMAIN, W HEREAS THE DRP REJECTED IT ONLY BECAUSE THE TPO HAD NO OCCASIO N TO CONSIDER THIS COMPANY DURING THE TP PROCEEDINGS. HE INVITED OUR ATTENTION TO THE PAPER ENTITLED BACKGROUND OF COMPARABLE COM PANIES IMPORT OF RAW MATERIAL AND SALE OF FINISHED GOODS INCORPORATED AT 5 ITA NO. 2021/DEL/2015 PAGE NO. 496 TO 498 OF THE PAPER BOOK AND VIDE SL. NO. 7 AT PAGE NO. 497 THERE IS A REFERENCE AS TO THE SHROFFS ENGI NEERING LIMITED WHICH SHOWS THAT THE COMPANY IS ENGAGED IN THE MANU FACTURING OF PREMIUM PLUGA BRAND SUBMERSIBLE PUMPSETS, OPENWEL L SUBMERSIBLE PUMPSETS, DRAINAGE PUMPS AND MINI MONOB LOCK PUMPS AND IT ALSO SHOWS THE SOURCE OF INFORMATION. PAGE NO. 236 TO 267 OF THE PAPER BOOK REFERS TO THE WRITTEN SUBM ISSIONS OF THE ASSESSEE BEFORE THE TPO AND AT PAGE NO. 245 & 246 T HE STATISTICS RELATING TO SHROFFS ENGINEERING LTD. ARE GIVEN AND VIDE PAGE NOS. 145 & 182 THE FINANCIAL STATEMENTS OF SHROFFS ENGIN EERING LTD. FOR THE YEAR 2010-11 ARE INCORPORATED. IT IS THE SUBMI SSION OF THE LD. AR THAT THOUGH ANNUAL REPORT WAS NOT AVAILABLE, ALL THE RELEVANT DATA IS AVAILABLE BEFORE THE TPO AS WELL AS THE LD. DRP. LD. DR WHILE REFERRING TO SCHEDULE W AT PAGE 173 OF THE PAPER BOOK SUBMITTED THAT THE SALE OUTSIDE INDIA IS LESS THAN 20% AND ON THIS ASPECT LD. AR SUBMITS THAT VIRTUALLY THE SALES OF T HE ASSESSEE ARE IN INDIA ONLY. 4. WE HAVE GONE THROUGH THE RECORD. THERE IS NO DI SPUTE THAT SHROFFS ENGINEERING LTD. IS ALSO IN THE LINE OF MAN UFACTURE OF 6 ITA NO. 2021/DEL/2015 PREMIUM SUBMERSIBLE PUMP SETS LIKE THE OTHER COMPAR ABLES CONFIRMED BY THE LD. DRP AND SHROFFS ENGINEERING LT D. IS ALSO FITTING IN THE PROFILE AS ONE IN THE LIST OF COMPAR ABLES. ALL THE RELEVANT INFORMATION LIKE THE FINANCIAL STATEMENTS FOR THE YEAR 2010-11 IS AVAILABLE ON RECORD FROM WHICH WE CAN FI ND OUT THAT THE RATIO BETWEEN THE COST OF GOODS SOLD TO SALES WAS 6 5%, WHEREAS FOR OTHER COMPARABLES SELECTED BY THE TPO IT IS BETWEEN 36% TO 68% AND SO ALSO ITS MARGIN IS 7.80% AS COMPARED TO OTHE RS BETWEEN 6.55% AND 17.19%. WHEN THERE IS NO DISPUTE AS TO T HE FUNCTIONAL PROFILE OR THE OTHER FINANCIAL PARAMETERS OF THE AS SESSEE AND SHROFFS ENGINEERING LIMITED, MERELY BECAUSE THE TPO HAD NO OCCASION TO CONSIDER THE COMPANY IN THE TP PROCEEDI NGS, THE DRP SHOULD NOT HAVE REJECTED THE SAME WITHOUT REFERRING TO THE MERITS OF THE MATTERS. WE ARE OF THE CONSIDERED OPINION T HAT SHROFFS ENGINEERING IS ALSO IN THE MANUFACTURING OF THE PUM PS IN LINE WITH THE ASSESSEE AND A SUITABLE COMPARABLE TO THE ASSES SEE. WE, THEREFORE, DIRECT THE INCLUSION OF THIS COMPANY IN THE COMPARABLES. 7 ITA NO. 2021/DEL/2015 5. IN RESPECT OF GROUNDS NO. 2 & 5 LD. AR SUBMITS T HAT THE RECTIFICATION PROCEEDINGS ARE PENDING AND NO SPECIF IC ADJUDICATION BY THE TRIBUNAL IS NECESSARY. WE RECORDED THE SAME . 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.11.2017 SD/- SD/- (R.S. SYAL) (K. NARSI MHA CHARY) VICE PRESIDENT JUDICIAL MEMB ER DATED: 23.11.2017 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI