TCL INDIA HOLDINGS P. LTD, MUMBAI V. ASST CIT CIR 3(3), MUMBAI

ITA 7129/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3787 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 08-05-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 20-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; International transaction
• Section: 92

Judgement Text

ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 7129/MUM/2011 (ASSESSMENT YEAR 2007-08 ) DATE OF HEARING: 8/5/2013 DATE OF PRONOUNCEMENT: 15 /5/2013 O R D E R PER RAJENDRA SINGH THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 16.8.11 OF THE AO PASSED IN PURSUANCE TO DIRECTION OF DISPUTE RESOLUTION PANEL (DRP) DATED 20 TH JUNE 2011. THE DISPUTE RAISED BY THE ASSESSEE RELATE TO TRANSFER PRICING (TP) ADJUSTMENT MADE BY AO IN RELATION TO TRANSACTION WITH ASSOCIATE ENTERPRISE ( AE). 2. THE FACTS IN BRIEF ARE THAT THE AO DURING THE AS SESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMPANY WHO WAS ENGAGED IN THE BUSINESS OF TRADING IN CONSUMER ELECTRONICS PRODUCT S SUCH AS TELEVISIONS, DIGITAL VIDEO, AIR CONDITIONER, WASHIN G MACHINE ETC. HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH AE FOR PURCHASE OF CERTAIN TCL HOLDINGS PVT. LTD. MARWAH CENTRE, 3 RD FLOOR, KRISHANLAL MARWAH MARG, ANDHERI (E), MUMBAI 400 072 PAN: AABCT 9975 D THE ASSISTANT COMMISIONER OF INCOME TAX, CIRCLE 3(3), PRATIKSHA BHAVAN, MAHARISHI KARVE ROAD, MUMBAI- 400 020. APPELLANT RESPONDENT DEPARTMENT BY. SHRI AJIT KUMAR JAIN ASSESSEE BY: SHRI VIJAY KOTHARI & AJIT SHETTY ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 2 OF 11 GOODS. SINCE, THE ASSESSEE HAD ENTERED INTO INTERNA TIONAL TRANSACTIONS THE AO REFERRED THE MATTER TO TPO FOR WORKING OUT T HE TP ADJUSTMENT. 2.1 THE TPO, THEREFORE, ASKED THE ASSESSEE TO SUBMI T THE DETAILS OF TP STUDY UNDERTAKEN BY IT TO COMPUTE THE TRANSFER PRIC ING ADJUSTMENT. AFTER CONSIDERING THE DETAILS THE TPO NOTED THAT TH E ASSESSEE HAD APPLIED TNMM METHOD FOR BENCH MARKING THE INTERNATI ONAL TRANSACTION AND HAD SELECTED SIX COMPARABLES WHICH GAVE WEIGHTE D AVERAGE ON OPERATING PROFIT ON SALES AT -7.95% AND WEIGHTED AV ERAGE PROFIT ON OPERATING COST AT -6.84% AS PER THE DETAILS GIVEN B ELOW:- NAME OF THE COMPANY WEIGHTED AVERAGE OPERATING PROFIT/SALES % WEIGHTED AVERAGE OPERATING COSTS ON TOTAL OPERATING PROFIT (%) COMPANIES PANASONIC AVR SALORA INTERNATIONAL CALCOM VISION LTD BPL CONSUMER SHARP INDIA VIDEOCON INDUSTRIES CONSUMER ARITHEMATIC MEAN MAXIMUM MINIMUM 2006-07 (3.41) 3.30 (21.70) (6.70) (8.50) 5.80 (5.20) 5.80 -21.70 2006-07 (2.92) 4.10 (20.30) (5.76) (7.68) 6.22 (4.39) 6.22 -20.30 WEIGHTED AVERAGE ARITHEMATIC MEAN TCL INDIA HOLDINGS PRIVATE LIMITED (7.95) (6.97) (6.84) (6.51) ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 3 OF 11 3. THE ASSESSEE EXPLAINED THAT WEIGHTED AVERAGE OPE RATING MARGIN OF THE ASSESSEE BOTH IN RELATION TO SALES AND OPERATIN G COST WAS MORE THAN THE WEIGHTED OPERATING MARGIN IN CASE OF THE COMPAR ABLES AND, THEREFORE, NO TRANSFER PRICING ADJUSTMENT WAS REQUI RED TO BE MADE. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD IMPORTED C OMPLETELY BUILT UNITS (CBUS) FOR RESALE AND ALSO IMPORTED COMPONENT S FROM AE. IT WAS POINTED OUT THAT WEIGHTED OPERATING MARGIN OF COMPA RABLES IN CASE OF CBUS RANGED BETWEEN -21.90 AND +5.80% ON OPERATING INCOME AND THE MEAN MARGIN WAS -7.95%, WHICH WAS LESS THAN THE OPE RATING MARGIN OF -6.9% IN CASE OF THE ASSESSEE. SIMILAR WAS THE POSI TION IN RELATION TO COMPONENTS. IT WAS ACCORDINGLY, URGED THAT NO ADJUS TMENT COULD BE MADE IN RELATION TO THE INTERNATIONAL TRANSACTION. THE TPO HOWEVER, DID NOT ACCEPT THE CONTENTIONS RAISED AND CONDUCTED HIS OWN STUDY BASED ON NEW COMPARABLES WHICH WERE ALSO DEALING IN CONSU MER ELECTRONICS GOODS. THE TPO COMPUTED THE ARITHEMATIC MEANMARGIN IN CASE OF THESE COMPARABLES AT 2.23% AFTER EXCLUDING THE LOSS CASES AS PER DETAILS GIVEN BELOW:- NAME OF THE COMPANY OPERATING PROFIT (RS. CRORES) OPERATING COST (RS CRORES) OPERATING REVENUE (RS CRORE) OPERATIN G MARGIN ON OPERATING REVENUES( %) BHARTI TELETECH LIMITED 180 20,037 20,217 0.89 USHA INTERNATIONAL LIMITED 1,832 43,453 45,285 4.05 VOLTAS LIMITED ( 1,560) 61,967 60,407 -2.58 HCL INFOSYSTEM LIMITED 170 8,824 9,074 1.87 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 4 OF 11 SPICE MOBILES 17,968 13,89,270 14,07,238 1.28 SALORA INTERNATIONAL 2,322 72,974 75,296 3.08 VIJAY HOME APPLIANCES LIMITED (2,09,92,405) 41,94,22,646 39,84,30241 -5.27 ARITHEMATIC MEAN 0.47 ARITHEMATIC MEAN WITHOUT LOSS MAKING COMPANIES 2.23 4. THE TPO, THEREFORE, ASKED THE ASSESSEE TO EXPLA IN AS TO WHY THE COMPARABLES SELECTED BY IT SHOULD NOT BE REJECTED A ND, IN THEIR PLACE, NEW COMPARABLES AS SELECTED BY THE TPO SHOULD NOT B E ACCEPTED. THE ASSESSEE SUBMITTED THAT THE COMPARABLES SELECTED BY THE TPO WERE DIFFERENT AND NOT COMPARABLE AS THEY WERE DEALING I N DIFFERENT PRODUCTS. MOREOVER, IT WAS POINTED OUT THAT MANY OF THEM WERE MANUFACTURING GOODS WHEREAS THE ASSESSEE WAS ONLY A TRADER. IT WA S SUBMITTED THAT THE ASSESSEE COMPANY WAS MAINLY TRADING IN TVS AND LCDS WHICH FORMED 75% OF THE REVENUE. THE OPERATING MARGIN OF THE CO MPANY, WAS INFLUENCED MAINLY BY THE TV SEGMENT, WHEREAS THE CO MPARABLES SELECTED BY THE TPO WERE DEALING IN DIFFERENT PRODU CTS. THE TPO, HOWEVER, DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT ASSESSEE HAD APPLIED TNMM METHOD IN WHICH ONLY BROAD SIMILARITY OF PRODUCTS WAS REQUIRED TO BE SEEN. THE COMPARABLE S SELECTED BY TPO WERE ALSO DEALING IN THE CONSUMER ELECTRONICS PRODU CTS. TPO ALSO OBSERVED THAT THE ASSESSEE ITSELF IN TP STUDY HAD CONSIDERED SALORA INTERNATIONAL AND VIDEOCON INDUSTRIES BUT IN THE SU BMISSIONS DATED 22.10.2010 THE ASSESSEE DISPUTED THE INCLUSION OF S ALORA INTERNATIONAL THEREBY CONTRADICTING ITS OWN STAND. THE ASSESSEE H AD ALSO IGNORED VIDEOCON INDUSTRIES AND CONSIDERED PHILLIPS INDIA L TD., AS COMPARABLE. THE TPO ALSO POINTED OUT THAT THE ASSESSEE HAD IGNO RED ALL THE PROFIT MAKING ENTITIES AND CONSIDERED ONLY THE LOSS MAKING ENTITIES IN THE NEW ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 5 OF 11 SET OF COMPARABLES. THE TPO, THEREFORE, REJECTED TH E OBJECTION RAISED BY THE ASSESSEE AND PROCEEDED TO MAKE THE TP ADJUSTMEN T ON THE BASIS OF NEW COMPARABLES SELECTED BY HIM WHICH GAVE MEAN MAR GIN OF 2 .23% AFTER EXCLUDING LOSS CASES. HE, THEREFORE, COMPUTED THE ADJUSTMENT ON THE BASIS OF MEAN MARGIN OF 2.23% WHICH WAS APPLIED TO THE ENTIRE OPERATING COST OF THE BUSINESS TO ARRIVE AT TP ADJU STMENT TO RS. 65,27,33,366/-. 5. THE ASSESSEE AGGRIEVED BY THE DECISION OF TPO FI LED OBJECTION BEFORE THE DRP CHALLENGING THE ADJUSTMENT AND COMPA RABLES SELECTED BY TPO ON VARIOUS COUNTS SUCH AS IGNORING THE COMPA RABLES SELECTED BY THE ASSESSEE WITHOUT GIVING ANY REASONS, REJECTING THE LOSS MAKING COMPANIES, WRONGLY APPLYING PLI ON TOTAL SALES INCL UDING THE LOCAL SALES AND MAKING ADJUSTMENT BY BENCH MARKING THE SALES WH EN THE AE TRANSACTIONS WERE PURCHASES. THE DRP HOWEVER, DID N OT ACCEPT THE OBJECTIONS RAISED BY THE ASSESSEE. IT WAS OBSERVED BY HIM THAT THE COMPARABLES SELECTED BY THE ASSESSEE WERE MOSTLY LO SS MAKING COMPANIES WHICH WERE REALLY NOT COMPARABLE. THE TPO HAD SELECTED THE COMPARABLES WHICH WERE FUNCTIONALLY COMPARABLE TO T HE BUSINESS OF THE ASSESSEE. DRP ALSO OBSERVED THAT IN CASE OF TNMM ME THOD, THE PRODUCT IDENTITY WAS NOT A NECESSARY CONDITION. THE DRP, FU RTHER POINTED OUT THAT THE ASSESSEE ITSELF IN THE TP STUDY HAD APPLIE D THE TNMM METHOD AT ENTITY LEVEL. THE NEW ARGUMENT RAISED BEFORE DRP THAT BENCH MARKING SHOULD BE DONE ONLY WITH REFERENCE TO INTER NATIONAL TRANSACTION WAS, THEREFORE, NOT ACCEPTABLE. THE DRP HOWEVER, OB SERVED THAT THE ASSESSEE HAD NOT GIVEN ANY BASIS FOR ALLOCATION OF EXPENDITURE BETWEEN THE INTERNATIONAL AND OTHER TRANSACTIONS WITH ANY S UPPORTING DOCUMENT. THE DRP, THEREFORE, UPHELD THE DECISION OF TPO SUBJ ECT TO EXCLUSION OF CERTAIN PROVISIONS MADE IN THE P&L ACCOUNT WHICH RE SULTED INTO ADJUSTMENT OF 47.85 CRORE IN PLACE OF 65.27 CRORE M ADE BY THE AO/TPO. THE AO ACCORDINGLY, PASSED THE ASSESSMENT ORDER MAK ING ADJUSTMENT OF ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 6 OF 11 47.85 CRORE. AGGRIEVED BY THE DECISION OF AO, THE A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. BEFORE US LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE MAIN PRODUCT LINE OF THE ASSESSEE COMPANY WAS SELLING TE LEVISION AND LCDS WHICH ACCOUNTED FOR 75% OF THE REVENUE. THE ASSESSE E HAD IMPORTED FOR RESALE IN INDIA TELEVISION, DIGITAL VIDEO, AIR COND ITIONER, WASHING MACHINE AND OTHER CONSUMER DURABLE PRODUCTS FOR TCL GROUP. THE PURCHASE OF COMPLETELY BUILD UNITS (CBUS) FROM THE AE WAS RS. 1 3,65,20,000/- PURCHASE OF COMPONENTS FROM AE FOR SALE TO THE ORI GINAL EQUIPMENTS MANUFACTURERS WAS WORTH RS. 42,60,11,000/- AND RECH ARGE COST WAS RS. 11,70,000/-. THUS THE TOTAL PURCHASES FROM THE AE WERE TO THE TUNE OF RS. 56,25,31,000/-. THE ASSESSEE HAD APPLIED TNM M METHOD FOR BENCH MARKING THE INTERNATIONAL TRANSACTION AND MAR GIN EARNED BY THE ASSESSEE WAS BETTER THAN THE MARGIN OF SIX COMPARAB LES SELECTED BY THE ASSESSEE. THE TPO HAD REJECTED THE COMPARABLES OF T HE ASSESSEE ON THE GROUND THAT MOST OF THE COMPARABLES WERE LOSS MAKIN G. IT WAS POINTED OUT THAT THE COMPARABLES COULD NOT BE REJECTED ONLY ON THE GROUND OF LOSS MAKING WITHOUT GIVING ANY SPECIFIC REASON, WHI CH HAD NOT BEEN DONE EITHER BY THE TPO OR BY DRP. IT WAS ALSO POINT ED OUT THAT THE COMPARABLES SELECTED BY THE TPO HAD TOTALLY DIFFERE NT PRODUCTS, SOME OF WHICH WERE ALSO MANUFACTURING CONCERNS WHICH WERE F UNCTIONALLY NOT COMPARABLE. THE ADJUSTMENT MADE BY TPO WHICH WAS UP HELD BY THE DRP WITH RESPECT TO THE ENTIRE SALE WHICH WAS NOT C ORRECT AS THE ADJUSTMENT COULD BE MADE ONLY WITH RESPECT TO INTER NATIONAL TRANSACTION. THIS HAD BEEN SPECIFICALLY POINTED OUT BY THE DRP WHO HAD REJECTED THE CLAIM ON THE GROUND THAT THE ASSESSEE ITSELF HAD MADE THE ADJUSTMENT ON THE BASIS OF TNMM METHOD AT ENTITY LE VEL. IT WAS POINTED OUT THAT THE ADJUSTMENT HAD BEEN MADE WITH RESPECT TO SALES WHEN THE INTERNATIONAL TRANSACTION WAS PURCHASE OF GOODS. TH E ASSESSEE HAD ALSO GIVEN THE COMPUTATION OF INTERNAL MARGIN WITH RESPE CT TO IMPORTED ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 7 OF 11 GOODS AND LOCAL TRADING GOODS WHICH CLEARLY SHOWED THAT THE MARGIN IN RESPECT OF IMPORTED GOODS WERE HIGHER, WHICH WAS NO T ACCEPTED BY THE TPO ON THE GROUND THAT THE ASSESSEE HAD NOT GIVEN A NY BASIS OF ALLOCATION OF EXPENDITURE BETWEEN THE INTERNATIONAL AND LOCAL TRANSACTION. THE ASSESSEE HAD ALSO MADE A CLAIM OF BENEFIT OF +/-5% RANGE WHILE MAKING THE TP ADJUSTMENT WHICH HAD NOT BEEN DEALT WITH BY THE DRP. IT WAS ACCORDINGLY ARGUED THAT THE MATT ER REQUIRES FRESH CONSIDERATION AT THE AO/TPO LEVEL. 6.1 THE LEARNED CIT (DR) APPEARING FOR THE REVENUE ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE ITSELF IN THE TP STUDY HAD BENCH MARKED THE TRANSACTION AT ENTITY LEVEL AND NOT IN RELATION TO THE INTERNATIONAL TRANSACTION AND THE SAME HAD BEEN FOLLOWED BY THE T PO AND, THEREFORE, THE ASSESSEE SHOULD NOT BE AGGRIEVED WITH THE APPRO ACH ADOPTED BY THE TPO. REFERRING TO THE DETAILS OF ORIGINAL TP STUDY AVAILABLE AT PAGES 72 TO 73 OF PAPER BOOK, LEARNED CIT(DR) POINTED OUT TH AT THE BUSINESS PROFILES OF THE COMPANIES SELECTED BY THE ASSESSEE ALSO INCLUDED MANUFACTURING ACTIVITY AND, THEREFORE, THE OBJECTIO N OF THE ASSESSEE TO THE MANUFACTURING COMPANIES SELECTED BY THE TPO WAS NOT JUSTIFIED. AS REGARDS, THE PRODUCT DIFFERENCES, IT WAS SUBMITTED THAT IN TNMM METHOD ONLY THE BROAD SIMILARITY OF PRODUCTS WAS RE QUIRED AND IT WAS NOT NECESSARY THAT THE PRODUCT SHOULD BE EXACTLY TH E SAME. THE COMPARABLES WHICH WERE FUNCTIONALLY SIMILAR HAVE TO BE TAKEN. IT WAS POINTED OUT THAT THE ASSESSEE ITSELF HAD SELECTED S ALORA INTERNATIONAL WHICH WAS ALSO A MANUFACTURING CONCERN. LEARNED, CI T (DR) POINTED OUT DISCREPANCIES IN THE FIGURES OF MARGIN IN RELATION TO SALORA INTERNATIONAL WHICH WAS 3.30% AS PER THE ASSESSEE WHEREAS AS PER THE TPO IT WAS 3.08%. IT WAS ALSO POINTED OUT THAT AS PER DETAILS GIVEN AT PAGE 72 OF PAPER BOOK, TOTAL INCOME WAS SHOWN 377 CRORE WHEREA S THE TOTAL INCOME SHOWN AT PAGE 27 WAS 304 CRORE. IT WAS ALSO POINTED OUT THAT FUNCTIONAL PROFILE OF THE ASSESSEE WAS ALSO NOT CLEAR. IT HAS BEEN ARGUED BY THE ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 8 OF 11 LEARNED AR THAT THE ASSESSEE WAS TRADING AS WELL AS IMPORTING CBUS BUT THE PL ACCOUNT PLACED AT PAGE 27 OF THE PAPER BOOK DID NOT SHOW ANY CBUS OR ANY MANUFACTURING ACTIVITIES. LEARNED CIT ( DR), THEREFORE, SUBMITTED THAT THE ENTIRE ISSUE RELATING TO TP ADJU STMENT REQUIRED FRESH EXAMINATION AND HE HAD NO OBJECTION IF THE MATTER W AS RESTORED BACK TO THE TPO/AO FOR FRESH ORDER IN ACCORDANCE WITH THE L AW. 7. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY THE DISPUTE RAISED IS REGARDING THE TRANS FER PRICING ADJUSTMENT MADE TO THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ASSOCIATE ENTERPRISE (AE). THE ASSESSEE DURING THE YEAR HAS CLAIMED TO HAVE MADE PURCHASES OF CBUS AND COMPONENTS FOR TOTA L VALUE OF RS.56,25,31,000/-. THE MATTER HAD BEEN REFERRED TO TPO FOR CARRYING OUT THE TRANSFER PRICING EXERCISE. AS PER THE SECTI ON 92, THE INCOME ARISING FROM AN INTERNATIONAL TRANSACTION IS REQUIR ED TO BE COMPUTED HAVING REGARD TO ARMS LENGTH PRICE OF THE TRANSACT ION. FOR COMPUTING THE ARMS LENGTH PRICE THERE ARE VARIOUS METHODS P RESCRIBED IN SECTION 92 C WHICH INCLUDES TRANSACTIONAL NET MARGIN METHOD (TNMM). IN THIS CASE, BOTH THE ASSESSEE AND THE TPO HAVE APPLIED TN MM METHOD. THE ASSESSEE HAD SELECTED SIX COMPARABLES THE MEAN MARG IN OF WHICH WAS FOUND TO BE LOWER THAN THE MARGIN DECLARED BY THE A SSESSEE. THEREFORE, IT HAS BEEN ARGUED THAT NO ADJUSTMENT WAS REQUIRED TO BE MADE. THE TPO HAD NOT ACCEPTED THE COMPARABLES SELECTED BY TH E ASSESSEE ON THE GROUND THAT MOST OF THEM WERE LOSS MAKING COMPANIES . THE TPO HAS ALSO EXCLUDED LOSS MAKING CASES OUT OF SEVEN COMPAR ABLES SELECTED BY HIM FOR MAKING THE TP ADJUSTMENT. WE AGREE WITH THE SUBMISSIONS OF THE LEARNED AR THAT THE COMPARABLES COULD NOT BE RE JECTED ONLY ON THE GROUND OF LOSS MAKING. THE CASES OF LOSS MAKING COM PANIES ARE REQUIRED TO BE FURTHER EXAMINED TO FIND OUT IF THE LOSS HAD OCCURRED DURING THE NORMAL COURSE OF BUSINESS OR BECAUSE OF SOME EXTRAORDINARY FACTORS WHICH HAVE AFFECTED THE COMPARABILITY OF TH E TRANSACTION. ONLY IN ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 9 OF 11 THE LATER CASE THE LOSS CASES HAVE TO BE EXCLUDED. NO SUCH EXERCISE HAS BEEN DONE. 7.1 WE ALSO FIND THAT BOTH ASSESSEE AND TPO HAVE AP PLIED TNMM METHOD AT ENTITY LEVEL WHICH IS NOT CORRECT. THE AD JUSTMENT IS REQUIRED TO BE COMPUTED ONLY WITH RESPECT TO INTERNATIONAL T RANSACTION AND NOT IN RESPECT OF THE ENTIRE BUSINESS TRANSACTIONS. THE ARGUMENT GIVEN BY TPO AND DRP THAT THEY HAVE MADE THE ADJUSTMENT AT T HE ENTITY LEVEL BECAUSE THE ASSESSEE HAD ALSO MADE ENTITY LEVEL ADJ USTMENT, CANNOT BE ACCEPTED. MERELY BECAUSE THE ASSESSEE HAD MADE MIST AKES IN COMPUTING THE TP ADJUSTMENT THE AUTHORITIES CANNOT FOLLOW THE SAME BLINDLY AS THEY ARE DUTY BOUND TO COMPUTE THE ADJUS TMENT CORRECTLY AS PER LAW. BECAUSE OF THE MISTAKES COMMITTED BY BOTH THE SIDES TP ADJUSTMENT HAS BEEN MADE AT RS. 65.27 CRORE WHEN TH E ENTIRE PURCHASES FROM THE AE WAS ONLY RS. 56.25 CRORE. THE ASSESSEE HAS ALSO OBJECTED TO THE COMPARABLES SELECTED BY THE TPO ON THE GROUND THAT THE PRODUCTS DEALT WITH BY THE COMPANIES WERE TOTALLY D IFFERENT. THE CASE OF THE DEPARTMENT IS THAT THEY HAVE SELECTED ONLY THOS E COMPANIES WHICH WERE DEALING IN CONSUMER ELECTRONICS PRODUCTS WHICH WERE THE PRODUCTS DEALT IN BY THE ASSESSEE. THE OBJECTION RAISED BY T HE ASSESSEE CANNOT BE ACCEPTED IF THE PRODUCTS SELECTED BY THE TPO ARE BR OADLY SIMILAR AS IN TNMM METHOD IT IS NOT NECESSARY THAT THE PRODUCT SH OULD BE EXACTLY THE SAME AS DEALT IN BY THE ASSESSEE. THE OBJECTION S HAVE ALSO BEEN RAISED BY THE ASSESSEE THAT THE COMPARABLES SELECTE D BY THE TPO WERE MANUFACTURING CONCERNS. HOWEVER, THE LEARNED CIT (D R) HAS POINTED OUT THAT THE ASSESSEE HAS ALSO SELECTED MANUFACTURI NG CONCERNS SUCH AS SALORA INTERNATIONAL. IN OUR VIEW, IN TNMM METHOD, FUNCTIONS OF THE COMPARABLES SELECTED SHOULD BE SIMILAR. THEREFORE, IT WILL NOT BE APPROPRIATE TO COMPARE THE MARGIN OF MANUFACTURING COMPANIES TO THOSE OF TRADING COMPANIES. THE LEARNED CIT (DR) AL SO POINTED OUT THAT BUSINESS PROFILE OF THE ASSESSEE ITSELF WAS NOT VER Y CLEAR. THE ASSESSEE HAS CLAIMED THAT IT WAS IMPORTING CBUS BUT THE LEAR NED CIT (DR) ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 10 OF 11 POINTED OUT THAT THE PL ACCOUNT PLACED AT PAGE 27 O F THE PAPER BOOK DOES NOT SHOW ANY PURCHASE OF CBUS. THE LEARNED CIT (DR) HAS ALSO POINTED OUT DISCREPANCY IN THE FIGURES OF TOTAL INC OME SHOWN BY THE ASSESSEE WHICH WAS 377 CRORE AS GIVEN AT PAGE 72 OF THE PAPER BOOK WHEREAS THE FIGURE GIVEN AT PAGE 27 IS RS. 304 CROR E. SIMILAR DISCREPANCY HAS ALSO BEEN POINTED OUT IN CASE OF MA RGIN OF SALORA INTERNATIONAL WHICH AS PER THE ASSESSEE WAS 3.30% W HEREAS AS PER THE TPO IT WAS 3.08%. 7.2 CONSIDERING THE VARIOUS DISCREPANCIES AS WELL A S INFIRMITIES IN THE APPROACH ADOPTED BY BOTH THE PARTIES WE CONSIDER IT APPROPRIATE THAT A FRESH TRANSFER PRICING STUDY BE UNDERTAKEN FOR SELE CTING PROPER COMPARABLES AFTER CAREFUL STUDY OF FUNCTIONAL PROFI LE OF THE ASSESSEE SO AS TO ARRIVE AT PROPER TP ADJUSTMENT. WE, THEREFORE , SET ASIDE THE ORDER OF AO AND RESTORE THE MATTER BACK TO AO/TPO FOR PAS SING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVA TIONS MADE IN THIS ORDER AND AFTER ALLOWING THE OPPORTUNITY OF HEARING TO THE ASSESSEE. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MAY, 2013 SD/- SD/- (AMIT SHUKLA ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 15TH MAY, 2013. SK SR. P.S. ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 ITA NO. 7129/MUM/2011 TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. TCL INDIA HOLDINGS PVT. LTD. PAGE 11 OF 11 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, K BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI