Mr. Frigoglass India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 463/DEL/2013

• Counselvise Citation: 46320114 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 19-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH KUMAR VERMA
• Assessee Lawyers: MANONEET DALAL; ARIJIT CHAKRAVORTY
• Keywords: Transfer pricing; International transaction; Revised return
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I NEW DELHI BEFORE SHRI R.P. TOLANI: JUDICIAL MEMBER AND SHRI B.C. MEENA : ACCOUNTANT MEMBER ITA NO. 463/DEL/2013 ASSTT. YR: 2008-09 M/S FRIGOGLASS INDIA PVT. LTD. VS. DCIT CIRCLE 11( 1), E-20, 1 ST & 2 ND FLOOR MAIN MARKET, NEW DELHI. HAUZ KHAS NEW DELHI-110016. PAN: AAACF 6804 G ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI ARIJIT CHAKRAVORTY ADV. & SHRI MANONEET DALAL ADV. RESPONDENT BY : SHRI YOGESH KUMAR VERMA CIT (D R) DATE OF HEARING: 19-02-2014 DATE OF ORDER: 11 TH APRIL, 2014. O R D E R PER R.P. TOLANI, J.M: : THIS IS ASSESSEES APPEAL AGAINST ASSESSMENT ORDER DATED 30-10-2012 PASSED BY THE DCIT CIRCLE 11(1), NEW DELHI U/S 143( 3)/144C PURSUANT TO DRP DIRECTIONS U/S 144C(5) OF THE INCOME-TAX ACT, 1 961. FOLLOWING GROUNDS ARE RAISED: 1. THE AO/ DRP HAVE ERRED IN CONFIRMING THE ORDER PASSED U/S 92CA(3) OF THE ACT MAKING AN ADDITION OF RS. 12 6,289,712 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACT ION ENTERED BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES. 1.1. THE DRP HAS ERRED IN CONCURRING WITH THE FINDI NGS OF THE AO/ TPO AND DISREGARDING THE ECONOMIC ANALYSIS UNDE RTAKEN ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 2 OF 16 2 BY THE APPELLANT FOR ESTABLISHING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS WITHOUT APPROPRIATE JUST IFICATION. 1.2 THE ORDER OF THE TPO DOES NOT HAVE ANY MATERIA L OR COGENT REASON FOR REJECTING THE ECONOMIC ANALYSIS U NDERTAKEN BY THE APPELLANT. DURING THE COURSE OF HEARING THE LEA RNED DEPARTMENTAL REPRESENTATIVE (DR) COULD NOT SUPPOR T THE STAND OF THE TPO AND MERELY RELIED ON THE ORDER OF THE TPO. THE DRP HAS ALSO NOT GIVEN ANY SPECIFIC FINDING IN THIS REGARD TO SUPPORT THE STAND OF THE TPO AND CONTROVERT THE TP STUDY OF THE APPELLANT WITH REASONS FOR BEING DISREGARDED, A S HAS BEEN DONE BY THE TPO. 2. THE TPO/ AO/ DRP HAVE ERRED IN LAW AND ON FACTS OF THE CASE IN APPLYING TNMM AS THE MOST APPROPRIATE METHO D (MAM) OVER THE CPM AND RPM ADOPTED BY THE APPELLANT FOR THE PURPOSE OF BENCHMARKING ITS INTERNATIONAL TRANS ACTIONS RELATED TO (A) SALE OF FINISHED GOODS, (B) SALE OF COMPONENTS AND SPARES, (C) PURCHASE OF RAW MATERIALS, AND (D) PURCHASE OF FINISHED GOODS FOR RESALE (THE IMPUGNED TRANSACTION S). 3. THE AO/ DRP HAVE ERRED IN NOT GRANTING A RELIEF TO THE APPELLANT FOR FRINGE BENEFIT TAX PAID (RS 1,822,367 ) AND INCLUDING THE SAME IN THE TOTAL INCOME FOR AY 2008- 09. 2. BRIEF FACTS ARE: FIPL IS IN THE BUSINESS OF GLAS S DOOR MERCHANDISING WITH A MANUFACTURING PLANT IN GURGAON. IT IS ENGAGE D IN MANUFACTURING AS WELL AS TRADING OF GLASS DOOR MERCHANDISING, WHICH IS RELEVANT IN ALCOHOLIC AND NON-ALCOHOLIC BEVERAGES, WATER, DAIRY PRODUCTS, BAKERY & CONFECTIONERY, PHARMACEUTICALS, ETC. 2.1. FOR ASSESSMENT YEAR (AY) 2008-09, THE ASSESS ING OFFICER (AO) MADE THE FOLLOWING ADDITIONS/ DISALLOWANCES TO THE INCOME DISCLOSED BY THE APPELLANT IN ITS RETURN OF INCOME ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 3 OF 16 3 PARTICULARS AMOUNT (IN INR) INCOME AS PER RETURN NIL ADD: ADDITIONS AS PROPOSED BY THE LD. TPO (TRANSFER PRICING) 126,289,712 ADD: ADDITIONS AS PROPOSED BY THE LD. AO 383,193 TOTAL TAXABLE INCOME 126,672,905 2.2. AN APPEAL WAS FILED WITH THE DISPUTE RESOLUTIO N PANEL (DRP) AGAINST THE ABOVE ADJUSTMENTS MADE BY THE TRANSFER PRICING OFFICER (TPO). THE DRP UPHELD THE POSITIONS ADOPTED BY TH E TPO IN ORDER DATED 21 SEPTEMBER 2012. HOWEVER, DRP PROVIDED A PARTIAL RELIEF AND DIRECTED THE TPO TO CORRECT MARGINS OF THE TESTED PARTY AND COMP ARABLE & ALSO TO EXCLUDE EXPENSES RELATING TO OTHER INCOME WHICH WERE HELD TO BE NON-OPERATING IN NATURE. 3. LD COUNSEL FOR THE ASSESSEE SHRI ARIJIT CHAKRAVA RTY, ADVOCATE, VEHEMENTLY CONTENDS THAT 3.1. THE LD. TPO WITHOUT APPRECIATING THE ALP WORKI NG OF ASSESSEES 2 SEGMENTS THAT IS FOR MANUFACTURING COST PLUS METHO D (CPM) AND RPM FOR TRADING SEGMENT , REJECTED THE SAME BY PROPOSING FO LLOWING UNJUSTIFIED REASONS FOR SUBSTITUTING THEM WITH TNMM METHOD: A. MANUFACTURING SEGMENT : I. CPM IS NOT APPLICABLE AS APPELLANTS FUNCTIONS A RE INTERLINKED AND THE CORRECT BENCHMARKING WILL BE POSSIBLE ONLY WHEN THE ENTITY LEVEL MARGINS ARE TAKEN INTO ACCOUNT. II. THE COST BASE OF THE APPELLANT DOES NOT INCLUDE INDIRECT COSTS. ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 4 OF 16 4 III. DETERMINATION OF COST IS UNCERTAIN AND EXTENSI VE INFORMATION ABOUT COST BASE OF THE APPELLANT AND COMPARABLE COM PANIES ARE NOT AVAILABLE. IV. THERE IS NO CLEAR GUIDANCE ON THE ACCOUNTING TR EATMENT OF GROSS MARGIN. V. THERE IS NO DISCERNABLE LINK BETWEEN THE LEVEL O F COSTS INCURRED AND A MARKET PRICE AS THE COMPENSATION MODEL VARIES CASE TO CASE. SO, CPM IS NOT THE APPROPRIATE METHOD. VI. THE COST PLUS METHOD PRESENTS SOME DIFFICULTIES IN PROPER APPLICATION, PARTICULARLY IN THE DETERMINATION OF C OSTS. ALTHOUGH IT IS TRUE THAT AN ENTERPRISE MUST COVER ITS COSTS OVER A PERIOD OF TIME TO REMAIN IN BUSINESS, THOSE COSTS MAY NOT BE THE DETE RMINANT OF THE APPROPRIATE PROFIT IN A SPECIFIC CASE FOR ANY ONE Y EAR. WHEN RELIABLE METHOD VIZ. TNMM IS AVAILABLE THEN THERE IS NO NEED TO GO TO CPM ESPECIALLY WHEN THE RELIABLE DATA EITHER IN THE TAX PAYERS CASE OR IN THE COMPARABLES CASE IS NOT AVAILABLE FOR ASCERTAINING THE DIRECT AND INDIRECT COST OF PRODUCTION OF SERVICES. B. IN REJECTING RPM METHOD IN RESPECT OF TRADING SEGME NT : 3.1. FURTHER, THE LD. TPO IN HIS ORDER CONTENTED TH AT RPM IS NOT THE MOST APPROPRIATE METHOD ON ACCOUNT OF THE FOLLOWING REAS ONS: (REFER PAGE 96 98 OF THE ITEM 6 OF THE APPEAL SET) I. CLOSE COMPARABILITY OF PRODUCTS IS REQUIRED IN R PM II. THE RESALE PRICE MARGIN MAY BE EFFECTED IF THER E ARE MATERIAL DIFFERENCES IN THE WAY ASSOCIATED ENTERPRISES AND I NDEPENDENT ENTERPRISES CARRY OUT THEIR BUSINESSES ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 5 OF 16 5 III. RESALE PRICE MARGIN ARE MORE ACCURATE WHEN IT IS REALIZED IN A SHORT SPAN OF TIME. THUS LEVEL OF INVENTORY AND CO STS INVOLVED IN KEEPING THE INVENTORIES HAVE TO BE ADJUSTED, WHICH MAY NOT BE POSSIBLE BASED ON THE INFORMATION AVAILABLE IN THE PUBLIC DOMAIN. FURTHER, THE LD. TPO ALSO STATED THAT FIPL IS MAINT AINING VERY HIGH INVENTORY (ALMOST 11.50% OF PURCHASES, RS 9.17 CROR ES/RS 79.86 CRORES OF SALES), WHICH INDICATES THE PRODUCTS ARE NOT MOVING FAST FOR CORRECT AVAILABILITY OF RPM. IV. RESALE PRICE MARGIN IS INFLUENCE BY VARIOUS FAC TORS INCLUDING THE LEVEL OF ACTIVITIES PERFORMED BY THE RESELLER, THE ACCOUNTING TREATMENT FOR GROSS MARGIN ETC. V. THE DR ALSO ERRED IN SUPPORTING LD TPOS OBSERVA TIONS THAT FIPL IS MAINTAINING VERY HIGH INVENTORY (ALMOST 11. 50% OF PURCHASES, RS 9.17 CRORES/RS 79.86 CRORES OF SALES), WHICH IND ICATES THE PRODUCTS ARE NOT MOVING FAST FOR CORRECT AVAILABILITY OF RPM WITHOUT SHOWING HOW THE SAME WOULD JUSTIFY THE REJECTION OF THE MET HOD ITSELF. NO ATTEMPT HAS BEEN MADE BY THE TPO TO MAKE ADJUSTMENT S FOR THE HIGH LEVEL OF INVENTORY EXCEPT FOR MAKING A GENERIC OBSE RVATION TO SUPPORT THE REJECTION OF THE METHOD ADOPTED BY THE APPELLAN T. VI. ASSESSEE APPROACHED THE LD DRP, WHICH CONFIRMED THE PROPOSAL OF TPO AND AO IN A SUMMARY MANNER. 3.2. LD. COUNSEL CONTENDS THAT WHILE DOING SO THE L D. TPO HAS MERELY STATED SOME THEORETICAL KEYS FOR APPLICATION OF TH E METHODS PROPOSED BY HIM. UNFORTUNATELY NOWHERE LD. TPO HAS STATED THE O BJECTIVITY AND FACTUAL APPLICATION OF THESE PRINCIPLES WHILE APPLYING THES E METHODS. 3.3. RELIABLE INTERNAL DATA FOR THE COST BASE AND T HE GROSS MARGIN ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 6 OF 16 6 INFORMATION IN RESPECT OF SALES BY TO AES AS WELL A S SALE TO NON- AES WAS AVAILABLE WHICH HAS BEEN TOTALLY IGNORED BY THE TPO /AO WITHOUT CARING TO OFFER ANY OBJECTIVE COMMENTS THEREON. 3.4. FURTHER LD. TPO HAS ERRED IN CALCULATING THE I NVENTORY RATIO BY TAKING COMPANY-WIDE SALES. THE TRADING SALES CONSIST OF ON LY 8.8 % VIZ. (7.03CRS/79.86 CRS) OF THE COMBINED MANUFACTURING A ND TRADING SALES. EVEN OTHERWISE, THE LD TPO HAS NOT PROVIDED ANY WORKING TO SHOW HOW THE INVENTORY LEVEL OF THE APPELLANT IS SIGNIFICANTLY H IGHER THAN THE INDUSTRY BENCHMARK SO AS TO DISTORT THE RELIABILITY OF CPM/R PM. 3.5. TRADITIONAL METHOD (I.E. CUP, CPM AND RPM) HAV E TO BE GIVEN PREFERENCE OVER TRANSACTIONAL METHODS (I.E. PSM AND TNMM). IN THESE FACTS, TNMM CANNOT BE CONSIDERED AS BEST METHOD AS CLAIMED BY LOWER AUTHORITIES. 3.6. THE TPO WAS NOT ABLE TO SUBSTANTIATE THAT RELE VANT PRINCIPLES WERE NOT FOLLOWED BY THE APPELLANT WHILE APPLYING CPM/RPM AN D DRP MERELY RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 3.7. THE METHODS HAVE BEEN SELECTED IN ACCORDANCE W ITH THE PROVISION OF ACT AND RULES MADE THERE UNDER. IT SHALL BE PERTINE NT TO MENTION THAT THIS METHODOLOGY HAS BEEN CONSISTENTLY APPLIED AND ACCEP TED BY THE REVENUE AUTHORITIES SO FOR (EXCEPT AY 2006-07, WHERE THE AP PEAL IS PENDING BEFORE HONBLE ITAT. (ITA NO. 3894/DEL-2013) 3.8. LD. COUNSEL RELIED ON ALUMECO INDIA EXTRUSION LTD THAT IF INTERNAL CPM ARE AVAILABLE THAN THEY SHOULD BE ACCEPTED OVER EXTERNAL TNMM. THUS THE TPOS ACTION IS CONTRARY TO THIS IMPORTANT ITAT JUDGMENT. IN ASSESSEES CASE CPM HAS BEEN ADOPTED CONSISTENTLY IN EARLIER Y EAR, WHICH HAS BEEN CONSISTENTLY ACCEPTED BY THE DEPARTMENT(EXCEPT IN A Y 2006-07 WHEREIN THE ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 7 OF 16 7 MATTER IS PENDING BEFORE THE HONBLE ITAT), THIS HA D BEEN . IT IS FURTHER CONTENDED THAT: 3.9. THE APPELLANT HAS CARRIED OUT SEPARATE ANALYSI S FOR MANUFACTURING SEGMENT (USING CPM) AND FOR TRADING SEGMENT (USING RPM). 3.10. MANUFACTURING AND TRADING ACTIVITIES ARE DIST INCT FROM EACH OTHER AND CARRY A DIFFERENT SET OF FUNCTION PROFILE. 3.10. THE OPERATING PROFIT OF THE APPELLANT WAS LOW AS A RESULT OF CAPACITY BUILDING AND RELATED COSTS. THE INSTALLED CAPACITY OF THE APPELLANT WAS INCREASED TO 180000 UNITS DURING THE RELEVANT FINAN CIAL YEAR AS COMPARED TO 52000 UNITS IN THE IMMEDIATELY PRECEDING YEAR. MAKI NG COMPARISON OF NET PROFIT AT ENTITY LEVEL BY APPLYING TNMM WITHOUT MAK ING ADJUSTMENT FOR CAPACITY WOULD LEAD TO HIGHER ADJUSTMENT, WHICH INF LUENCED THE TPO TO REJECT THE MAM ADOPTED BY THE APPELLANT, WITHOUT BR INGING ANY COGENT AND SUBSTANTIAL REASON ON RECORD. 3.12. WITHOUT PREJUDICE IT IS CONTENDED THAT TNMM S HOULD NOT BE CONSIDERED AS THE MOST APPROPRIATE METHOD TO DETERM INE THE ARMS LENGTH PRICE FOR THE IMPUGNED TRANSACTIONS, THE APPELLANT SUBMITS THAT WHILE SELECTING THE COMPANIES DUE COGNIZANCE SHOULD BE GI VEN TO THE FUNCTIONS, ASSETS AND RISKS ANALYSIS (FAR ANALYSIS) OF THE A PPELLANT VIS--VIS THAT OF THE OTHER COMPANIES. 3.13. THE ABERRATIONS IN EACH COMPARABLE SELECTED B Y THE LD. TPO IS COMPILED IN THE FOLLOWING TABLE: ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 8 OF 16 8 NAME OF COMPANY REASON FOR NON-COMPARABILITY BLUE STAR LIMITED NON COMPARABLE TURNOVER RS 2,196.72 CRORES [RELIANCE ON AGNITY INDIA (DELHI ITAT)] WITHOUT PREJUDICE, ONLY COOLING PRODUCTS SEGMENT CAN BE CONSIDERED AT COMPARABLE FRICK INDIA LIMITED NON COMPARABLE PRODUCT - COMPRESSORS, ACCESSORIES AND FITTINGS FOR MANUFACTURE OF INDUSTRIAL AIR- CONDITIONING REFRIGERATION & ICE PLANTS INSUFFICIENT SEGMENTAL INFORMATION ONLY A SMALL PORTION OF SMALL PORTION OF MANUFACTURE OF PACKAGED TYPE COOLING / FREEZING UNITS HITACHI HOME & LIFE SOLUTIONS (INDIA) LIMITED NON COMPARABLE PRODUCT AIR CONDITIONERS (APPROXIMATELY 95% OF TOTAL REVENUE) NON COMPARABLE FUNCTION SMALL TURNOVER FROM TRADING OF REFRIGERATORS AND WASHING MACHINES LG ELECTRONICS INDIA PRIVATE LIMITED INSUFFICIENT SEGMENTAL INFORMATION THE DIGITAL APPLIANCES DIVISION INCLUDES AIR CONDITIONERS, REFRIGERATORS, MICROWAVE OVENS, WASHING MACHINES, COMPRESSORS AND VACUUM CLEANERS NON COMPARABLE TURNOVER 6,952.69 CRORES WITHOUT PREJUDICE, ONLY DIGITAL APPLIANCES DIVISIO N IS COMPARABLE LLOYD ELECTRIC & ENGINEERING LIMITED NON COMPARABLE PRODUCT HEAT EXCHANGER COILS, EVAPORATOR AND CONDENSER COILS FOR AIR CONDITIONERS NON COMPARABLE TURNOVER RS 665.01 CRORES PATEL AIRTEMP (INDIA) LIMITED NON COMPARABLE PRODUCT HEAT EXCHANGERS, PRESSURE VESSELS, AIR-CONDITIONING & REFRIGERATION EQUIPMENTS, TURNKEY HVAC PROJECTS AND OTHER MISC. PRODUCTS INSUFFICIENT SEGMENTAL INFORMATION REVENUE FROM SALE OF AIR CONDITIONING, REFRIGERATION PLANT & EQUIPMENT IS ONLY 18% OF THE TOTAL TURNOVER. NO SEPARATE SEGMENTAL INFORMATION IS AVAILABLE FOR SAL E OF REFRIGERATORS SAMSUNG INDIA ELECTRONICS PRIVATE LIMITED INSUFFICIENT SEGMENTAL INFORMATION PRODUCTS UNDER HOME APPLIANCES SEGMENT INCLUDES COLOUR TELEVISIONS, AIR CONDITIONERS, REFRIGERATORS, MICROWAVE OVENS, WASHING MACHINES, COMPRESSORS, ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 9 OF 16 9 NAME OF COMPANY REASON FOR NON-COMPARABILITY VACUUM CLEANERS NON COMPARABLE TURNOVER RS 5,430.62 CRORES WITHOUT PREJUDICE, ONLY HOME APPLIANCES SEGMENT CAN BE CONSIDERED AT COMPARABLE VOLTAS LIMITED INSUFFICIENT SEGMENTAL INFORMATION COMPANYS SEGMENTS INCLUDES ELECTRO-MECHANICAL PROJECTS & SERVICES, ENGINEERING PRODUCTS & SERVICES, UNITARY COOLING PRODUCTS FOR COMFORT & COMMERCIAL USE, AND OTHERS UNITARY COOLING PRODUCTS BUSINESS IS ENGAGED IN MANUFACTURING AND SALE OF AIR CONDITIONERS, COMMERCIAL REFRIGERATORS, WATER COOLERS AND DISPENSERS NON COMPARABLE TURNOVER RS 3,202.93 CRORES WITHOUT PREJUDICE, ONLY UNITARY COOLING PRODUCTS SEGMENT CAN BE CONSIDERED AT COMPARABLE WHIRLPOOL OF INDIA LIMITED INSUFFICIENT SEGMENTAL INFORMATION MANUFACTURING AND TRADING OF REFRIGERATORS, WASHING MACHINES, AIR CONDITIONERS, MICROWAVE OVENS AND OTHER APPLIANCES REFRIGERATORS CONTRIBUTE ONLY 64% OF TOTAL REVENUE NON COMPARABLE TURNOVER RS 1,762.24 CRORES 3.14. WITHOUT PREJUDICE IT IS FURTHER CONTENDED THA T AT THE SPECIFIC REQUEST OF THE LD. TPO, THE APPELLANT SUBMITTED A SEARCH FOR C OMPARABLE COMPANIES WHICH COULD BE CONSIDERED FOR THE PURPOSE OF TNMM A NALYSIS VIDE ITS SUBMISSION DATED 2 AUGUST 2011 TO THE TPO. AS PER THE SEARCH, ONLY 2 COMPANIES WERE IDENTIFIED AS COMPARABLES TO THE APP ELLANT. THE LD. TPO HAS REJECTED THE SEARCH CONDUCTED BY APPELLANT STAT ING THAT IT HAS NOT PROVIDED ANY BASIS FOR SELECTION OR REJECTION OF CO MPANIES AND HAS RESORTED TO CHERRY PICKING BY SELECTING ONLY LOSS MAKING COM PANIES, WITHOUT PROVIDING ANY SPECIFIC REASON FOR REJECTION OF EACH COMPARABLE IDENTIFIED BY THE APPELLANT. 3.15. LD. COUNSEL INDICATED THE FACTUAL INACCURACY IN STATEMENT OF THE LD. ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 10 OF 16 10 TPO AS IN SUBMISSION DATED 2 AUGUST 2011, COMPLETE DETAILS PROVIDING THE MATRIX CONTAINING REASONS FOR ACCEPTANCE/ REJECTION FOR ALL THE COMPANIES THAT WERE IDENTIFIED IN THE SEARCH PROCESS. LD. TPOS A RGUMENT THUS HAS NO BASIS FOR THE ALLEGATION THAT THE APPELLANT HAS RESORTED TO CHERRY PICKING OF COMPARABLES FOR ACHIEVE BIASED RESULTS IS FACTUALLY INCORRECT AND DEVOID OF ANY LOGIC. 3.16. IT MAY BE NOTED THAT THAT OUT OF 2 COMPARABLE COMPANIES SELECTED BY THE APPELLANT, 1 COMPANY (CARRIER AIR-CONDITIONING & REFRIGERATION LIMITED) HAS ALSO BEEN ACCEPTED BY THE LD. TPO AS C OMPARABLE IN HIS SEARCH ALBEIT AT AN ENTITY WIDE LEVEL AS AGAINST SEGMENTAL LEVEL ADOPTED BY THE APPELLANT. 3.17. ONE OF THE OTHER COMPANY SELECTED BY THE ASSE SSEE (I.E. RINAC INDIA LIMITED) HAS NOT BEEN SPECIFICALLY REJECTED BY THE LD. TPO. IT IS P-LEADED THAT SINCE RINAC INDIA IS ENGAGED IN THE SAME BUSIN ESS ACTIVITY AS THE APPELLANT AND PERFORMS SIMILAR FUNCTIONS AS CARRIED OUT BY THE APPELLANT, IT SHOULD BE CONSIDERED AS COMPARABLE. ON THE CONTRAR Y, THE LD. TPO HAS FAILED TO PROVIDE ANY REASON AS TO WHY THIS COMPANY SHOULD NOT BE CONSIDERED AS COMPARABLE. IN THIS REGARD, THE APPEL LANT WISHES TO PLACE RELIANCE ON THE RECENT RULING OF THE MUMBAI ITAT IN THE CASE OF THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE 6(3) VS. MAERSK G LOBAL SERVICE CENTRE (INDIA) PRIVATE LIMITED [TS-655ITAT-2011(MUM)]; GRO UND NO.8 3.18. THE LD. TPO ERRED IN COMPUTING THE OPERATING MARGIN OF FIPL FROM MANUFACTURING AND TRADING ACTIVITIES AT (-)5.95% BY EXCLUDING SERVICE PROVIDER FEES (RS 18,311,375) AND OTHER INCOME (RS 36,746,187) AS PART OF OPERATING INCOME. SUCH INCOME IS INTRINSICALLY LINK ED TO THE BUSINESS OPERATING OF FIPL AND CANNOT BE EXCLUDED FOR THE PU RPOSE OF COMPUTATION OF OPERATING MARGINS. ONLY THE INTEREST INCOME CAN BE SAID TO BE NON-OPERATING ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 11 OF 16 11 IN NATURE, AND OTHER INCOME SHOULD BE CONSIDERED FO R THE PURPOSE OF COMPUTING THE OPERATING MARGINS. IT IS IMPORTANT TO HIGHLIGHT HERE THAT VIDE SUBMISSION DATED 2 AUGUST 2011 TO THE TPO, THE APPE LLANT HAD HIMSELF EXCLUDED THE INTEREST INCOME AMOUNTING TO 6,817,186 FOR THE PURPOSE OF COMPUTING THE OPERATING MARGINS AT AN ENTITY LEVEL AT THE SPECIFIC REQUEST OF THE LD TPO. BESIDES, SINCE SIMILAR INCOME IS CONSI DERED AS PART OF OPERATING INCOME FOR COMPARABLES, THE SAME SHOULD BE CONSIDER ED FOR THE PURPOSE OF COMPUTATION OF OPERATING MARGINS OF FIPL. 3.19. WITHOUT PREJUDICE, IF SERVICE PROVIDER FEES IS TO BE EXCLUDED FROM INCOME SIDE, CORRESPONDING EXPENSES SHOULD ALSO BE EXCLUDED AS DIRECTED BY THE DRP. 3.20. IT IS FURTHER CONTENDED BY LD. COUNSEL THAT T HE TPO/ AO/ DRP HAVE FURTHER ERRED IN LAW AND ON FACTS OF THE CASE IN NO T CONSIDERING THE AVAILABLE SEGMENTAL DATA AND ADOPTING THE COMPANY-WIDE DATA, WHICH IS CONTRARY TO WELL ACCEPTED INTERNATIONAL PRINCIPLES AND PRACTICE AS WELL AS THE LAW LAID DOWN IN THIS REGARD BY VARIOUS COURTS. THE TPO HAS CONSIDERED THE COMPANY WIDE DATA WHICH IS CONTRARY TO THE PROVISION OF ACT /RULE. 3.21. THE TPO/ AO ALSO ERRED IN NOT FOLLOWING THE D IRECTIONS GIVEN BY THE DRP TO RECOMPUTE THE OPERATING MARGIN OF THE APPELL ANT AS WELL AS COMPARABLE COMPANIES TO EXCLUDE CERTAIN NON-OPERATI NG ITEMS AND CONSIDERING ALL OPERATING INCOMES AND EXPENSES. 3.22. THE DIRECTIONS OF THE DRP WERE BINDING ON THE AO/TPO. THE SAME HAS NOT BEEN FOLLOWED AND THE ORDER OF THE TPO IN W HICH THIS DIRECTION HAS APPARENTLY NOT BEEN COMPLIED WITH BY THE TPO HAS NO T BEEN PROVIDED TO THE APPELLANT, THUS IT IS NOT IN A POSITION TO TAKE FUR THER RECOURSE. THE APPELLANT HAD SPECIFICALLY STATED THAT IN THE CASE OF COMPARA BLES, FBT HAD BEEN TAKEN AS PART OF THE OPERATING MARGIN. AS PER DIRECTION O F DRP, FBT AND OTHER ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 12 OF 16 12 NON-OPERATING ITEMS HAD TO BE EXCLUDED IN THE CASE OF THE APPELLANT AS WELL AS IN CASES OF COMPARABLES. (REFER PAGE 27, 35 OF I TEM 4, PAGES 83-87OF ITEM 5 OF THE PAPER BOOK AND PAGE B3 OF THE APPEAL SET). 3.23. IT IS PLEADED THAT THE TPO/ AO/ DRP HAVE ERRE D IN LAW AND IN FACTS AND CIRCUMSTANCES BY NOT GRANTING THE ADJUSTMENT FO R DIFFERENCE IN THE CAPACITY UTILIZATION OF THE APPELLANT VIS--VIS THE COMPARABLE COMPANIES. DURING THE AY 2008-09, THE APPELLANT HAD INCREASED ITS INSTALLED CAPACITY FROM 52000 TO 180,000 UNITS OF GLASS DOOR REFRIGERA TOR. HOWEVER, THE ACTUAL OUTPUT FOR AY 2008-09 WAS ONLY 54,995 UNITS, RESULT ING IN UTILIZATION OF ONLY 30.55%OF ITS INSTALLED CAPACITY. THE AVERAGE CAPACI TY UTILIZATION OF THE COMPARABLE COMPANIES WAS 64.26%. HENCE, A CLAIM FOR CAPACITY ADJUSTMENT WAS MADE. DETAILED WORKING WAS GIVEN TO THE TPO. TH E LD. TPO HAS REJECTED THE CLAIM OF CAPACITY UTILIZATION RAISE BY FIPL ON THE GROUNDS THAT MERELY STATING THE CAPACITY UTILIZATION PERCENTAGE FIPL IS OPERATING AT IS NOT ENOUGH. THE APPELLANT HAS FAILED TO COME UP WITH AN Y BACK UP CALCULATION. (REFER PAGE 113 OF THE ITEM 7 OF THE APPEAL SET) 3.24. IN THIS REGARD LD. COUNSEL SUBMITS, THAT A DE TAILED WORKING OF CAPACITY UTILIZATION WAS SUBMITTED VIDE SUBMISSION DATED 7 O CTOBER 2011 TO THE LD. TPO. ALSO, A DETAILED WORKING OF CAPACITY UTILIZATI ON WAS SUBMITTED TO DRP. THERE IS A SIGNIFICANT DIFFERENCE IN THE CAPACITY U TILIZATION OF THE APPELLANT AND COMPARABLES, HENCE, AN ADJUSTMENT TO THE OPERAT ING COST OF FRIGOGLASS INDIA IS REQUIRED TO ACCOUNT FOR UNUTILIZED CAPACIT Y. 3.25. FURTHER, THE DRP ERRED AND HELD THAT THE ASS ESSEE HAS CONTENDED THAT ADJUSTMENT FOR CAPACITY HAS TO BE GIVEN AS THE JUIC E PLANT WAS SHUT DOWN FOR SOME TIME DUE TO LOSS FOR ORDER. NO DETAILS HAVE BE EN FILED BEFORE THE DRP. FROM ACCOUNTS IT IS SEEN THAT THE ASSESSEE OPERATED AT 30.55% AS AGAINST 58.69% OF COMPARABLES, IN SUBMISSION DATED 11.10.20 11 BEFORE TPO IS ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 13 OF 16 13 STATED THE DATA FOR FY 2005-06 HAS BEEN CONSIDERED . 3.26. IN THIS REGARD THE APPELLANT SUBMITS THAT FIP L IS IN THE BUSINESS OF GLASS DOOR MERCHANDISING. FURTHER, FIPL DOESNT OWN ANY JUICE PLANT AND THE DATA USED FOR CAPACITY UTILIZATION SUBMITTED BEFORE THE LD TPO WAS FOR RELEVANT YEAR I.E. FY 2007-08. HENCE, THE DIRECTION S PASSED BY THE DRP ARE INCORRECT AND WITHOUT APPLICATION OF MIND. 3.27. THE LEARNED TPO/ AO/ DRP HAVE ERRED IN LAW BY MAKING AN ADJUSTMENT BASED ON THE COMPANYWIDE ANALYSIS AND NO T CONSIDERING THE APPELLANT PLEA FOR A PROPORTIONATE ADJUSTMENT WHIC H SHOULD BE COMPUTED IN PROPORTION TO THE VALUE OF THE INTERNATIONAL TRANSA CTIONS. LD. COUNSEL STATED THAT NOTWITHSTANDING THAT IT DOES NOT AGREE WITH TH E APPROACH OF THE TPO, EVEN IF ANY ADJUSTMENT WAS TO BE DONE, IT COULD BE DONE WITH RESPECT TO THE TRANSACTIONS WITH THE AES. THE TPO HAS ERRED IN LAW AND ON FACTS IN MAKING ADJUSTMENT ON ENTITY LEVEL TRANSACTIONS I.E. ALL SA LES RELATING TO MANUFACTURING AND TRADING INCLUDING THAT MADE TO NON-RELATED PART IES. 3.28. APROPOS CORPORATE TAX ISSUES, IT IS PLEADED T HAT LD. AO/ DRP HAVE ERRED IN NOT GRANTING A RELIEF QUA FRINGE BENEFIT T AX PAID (RS 1,822,367), WHICH WAS INADVERTENTLY DISALLOWED IN THE COMPUTATI ON BY THE APPELLANT AND INCLUDED IN THE TOTAL INCOME FOR AY 2008-09, WHICH HAS RESULTED IN DOUBLE TAXATION OF THE SAID AMOUNT AS THE LOSS AS PER P/L WAS RS. 17,975,226, AND THE FBT AMOUNTING TO RS. 18.22,367/- WAS BELOW THE LINE. THE APPELLANT HAS HOWEVER ERRONEOUSLY DISALLOWED THE AMOUNT OF RS. 18 ,22,367/-, WHICH TANTAMOUNT TO DOUBLE DISALLOWANCE. 3.29. TO CORRECT THIS INADVERTENT MISTAKE ASSESSEE FILED A REVISED COMPUTATION BEFORE AO. THE SAME WAS REJECTED FOR CO NSIDERATION THAT ASSESSEE INSTEAD OF A REVISED COMPUTATION SHOULD HA VE FILED REVISED RETURN. CONSEQUENTLY TAKING RECOURSE TO GOETZE INDIA LTD. 1 57 TAXMAN 1(SC), THIS ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 14 OF 16 14 LEGITIMATE CLAIM WAS REJECTED. DRP CONFIRMED THE SA ME. 3.30. LD COUNSEL CONTENDS THAT THE APPELLATE AUTHOR ITY HAS BEEN VESTED WITH POWER TO ACCEPT SUCH CLAIMS BY HONBLE SUPREME COUR T IN GOETZE JUDGMENT ITSELF. THEREFORE, IT IS PLEADED THAT IN THE INTERE ST OF JUSTICE THIS INADVERTENT DOUBLE TAXATION MAY BE SUITABLY CORRECTED. 4. LD. CIT(DR) SHRI YOGESH VERMA RELIED ON THE ORD ERS OF AO/TPO/DRP. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW, ONCE A SSESSEE HAS GIVEN A METHODOLOGY FOR WORKING OF ALP ON SELECTION OF A PA RTICULAR METHOD SUPPORTED BY APPROPRIATE COMPARABLES, THE WORKING C AN BE DISLODGED BY TPO ON THE BASIS OF COGENT REASONS AND OBJECTIVE FI NDINGS. IN THIS CASE EXCEPT THEORETICAL ASSERTIONS AND GENERALIZED OBSER VATIONS, NO OBJECTIVE FINDINGS HAVE BEEN GIVEN TO COME TO A REASONED CONC LUSION THAT ASSESSEES ADOPTION OF CPM FOR MANUFACTURING SEGMENT AND RPM F OR TRADING SEGMENT WAS FACTUALLY AND OBJECTIVELY NOT CORRECT. THUS TH E REJECTION OF METHODS BY TPO AS ADOPTED BY ASSESSEE IS BEREFT OF ANY COGENCY AND OBJECTIVITY. THE SAME IS A WORK OF GUESSING AND CONJECTURED. SIMILAR LY THE TNMM METHOD APPLIED BY THE TPO SUFFERS FROM THE SAME INHERENT A BERRATIONS AS MENTIONED ABOVE. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW TH AT ASSESSEES METHODS OF CPM AND RPM RESPECTIVELY WORKED BY APPLYING APPROPR IATE COMPARABLES IS TO BE UPHELD. THUS THE ALP WORKING RETURNED BY THE ASSESSEE IS UPHELD. ASSESSEES TP GROUNDS ARE ALLOWED. 5.1. APROPOS CORPORATE ADDITIONS THOUGH AO MAY INSI ST FOR A REVISED RETURN THE APPELLATE AUTHORITY HAS BEEN VESTED WITH POWERS TO ALLOW THE LEGITIMATE CLAIMS OF THE ASSESSEE EVEN ON THE BASIS OR REVISED COMPUTATION. ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 15 OF 16 15 IN VIEW OF THESE OBSERVATION WE DIRECT THE LD AO TH E VERIFY THE REVISED COMPUTATION CLAIM OF THE ASSESSEE IN ACCORDANCE WIT H LAW. 6. IN THE RESULT ASSESSES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 11-04-2014. SD/- SD/- ( B.C. MEENA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11-04-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 463/DEL/2013 M/S FRIGOGLASS INDIA PVT. LTD. PAGE 16 OF 16 16