ACIT, New Delhi V. M/s. Sanden Vikas India Ltd., New Delhi

ITA 826/DEL/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0048 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 13-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAMAN CHOPRA
• Keywords: Related party transaction; Business income; Transfer pricing; Opportunity of being heard; International transaction; Set aside
• Section: 92C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.348/DEL./2017 (ASSESSMENT YEAR : 2011-12) M/S. SANDEN VIKAS INDIA LIMITED, VS. ACIT, CIRCLE 2 2 (1), 12 A, SHIVAJI MARG, NEW DELHI. NEW DELHI 110 015. (PAN : AABCS3174M) ITA NO.826/DEL./2017 (ASSESSMENT YEAR : 2011-12) ACIT, CIRCLE 22 (1), VS. M/S. SANDEN VIKAS INDIA LI MITED, NEW DELHI. 12 A, SHIVAJI MARG, NEW DELHI 110 015. (PAN : AABCS3174M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRADEEP DINODIA, ADVOCATE REVENUE BY : SHRI RAMAN CHOPRA, CIT DR DATE OF HEARING : 10.12.2019 DATE OF ORDER : 31.12.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER PRESENT CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE BEING DISPOSED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCUSSION. ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 2 2. APPELLANT, M/S. SANDEN VIKAS INDIA LIMITED (HERE INAFTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 28.11.2016 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-19, NEW DELHI IN AN APPEAL CHALLENGING THE ORDERS PASSED BY THE LD. TPO /AO QUA THE ASSESSMENT YEAR 2011-12 ON THE GROUNDS INTER ALIA T HAT :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)/(ASSESS ING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN MAKING ADJUSTMENT TO THE INTERNATIONAL TRANSACTION DECLARED BY THE ASSESSEE BY RS.3,46,21,430 AND CONSEQUENT ADDIT ION OF RS.3,46,21,430 TO THE RETURNED INCOME OF THE ASSESS EE. 2. A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)/ (A SSESSING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN REJECTING THE PRODUCT CLASSIFICATION OF ASSESSEE, B EING THE 'AUTOMOBILE ANCILLARIES' WHICH HAS BEEN USED FROM P AST MANY YEARS AND HAS BEEN ACCEPTED BY THE REVENUE CONSISTE NTLY. B. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX APPEAL)/ (ASSESS ING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN COMING TO CONCLUSION THAT THE PRODUCTS MANUFACTURED BY ASSESSEE PERTAIN TO ENGINE PART SEGMENT. C. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX APPEAL)/ (ASSESS ING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN NOT CONSIDERING THE FACTUAL SUBMISSIONS OF THE ASSE SSEE THAT IT MANUFACTURES PRODUCTS WHICH IS USED TO COOL INSIDE THE CAR AND NOT THE ENGINE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) /(ASSES SING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN NOT ACCEPTING THE COMPARABLES SELECTED BY ASSESSEE FOR MANUFACTURING SEGMENT WHEN THE EXACT SAME COMPARABL ES WERE DEEMED CORRECT FOR THE INTERNATIONAL TRANSACTIONS O F TRADING. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)/ (ASSES SING ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 3 OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN REJECTING THE TRANSFER PRICING APPROACH OF THE APPE LLANT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)/ (ASSES SING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN NOT CONSIDERING FILTER TO REJECT COMPARABLES HAVING RELATED PARTY TRANSACTION OF MORE THAN 15% OF SALES AND TAKING IT AS 25% OF SALES. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) /(ASSES SING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN NOT CONSIDERING FILTER TO REJECT COMPARABLES HAVING EXPORT SALES OF MORE THAN 25% OF TOTAL SALES. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)/ (ASSES SING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN NOT ACCEPTING CONSUMPTION OF RAW MATERIAL AS PERCEN TAGE OF TOTAL EXPENDITURE AS AN APPROPRIATE FILTER, WITHOUT GIVING ANY REASON FOR THE SAME. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)/ (ASSES SING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN NOT ACCEPTING THE SUBMISSION OF ASSESSEE FOR REJECT ION OF COM PARABLES HAVING VERY LOW CONSUMPTION OF RAW MATERIA L IN PERCENTAGE OF SALES IN COMPARISON TO THE ASSESSEE. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) / (ASSE SSING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN IGNORING THE FACT THAT ASSESSEE'S BROADER BUSINESS PROFILE REQUIRES SELECTION OF COMPARABLES BASED ON BROADER CLASSIFICATION OF INDUSTRIAL SECTOR OF ASSESSEE. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)/ (ASSES SING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN NOT EVALUATING THE FUNCTION ASSETS AND RISK PROFILE S OF COMPARABLES SELECTED FOR ADDITION TO THE ASSESSEE'S OWN SET OF COMPARABLES. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) /(ASSES SING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN NOT CONSIDERING THE RESPONSE OF THE ASSESSEE AGAINS T THE COMPARABLES PROPOSED TO BE ADDED TO THE ASSESSEE'S COMPARABLE. ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 4 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)/ (ASSES SING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN COMING TO CONCLUSION THAT ONLY ONE COMPANY MIS SUBR OS INDIA LTD IS COMPARABLE TO ASSESSEE AND REJECTING ALL OTH ER COMPANY. 13. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) / (ASSE SSING OFFICER)/JOINT COMMISSIONER OF INCOME TAX (TPO) HAS ERRED IN GIVING BENEFIT OF SAFE HARBOR LIMIT OF +/- 5% TO TH E ASSESSEE ON THE COST OF INTERNATIONAL TRANSACTION OF PURCHASE INSTE AD OF CALCULATED ARM'S LENGTH COST OF SALES. 14. WITHOUT PREJUDICE TO ABOVE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) I (ASSESSING OFFICER)/JOINT COMMISSION ER OF INCOME TAX (TPO) HAS ERRED IN NOT GIVING BENEFIT OF SAFE HARBOR LIMIT OF +/- 5%. 3. APPELLANT, ACIT, CIRCLE 22 (1), NEW DELHI (HEREI NAFTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 28.11.2016 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-19, NEW DELHI IN AN APPEAL CHALLENGING THE ORDERS PASSED BY THE LD. TPO /AO QUA THE ASSESSMENT YEAR 2011-12 ON THE GROUNDS INTER ALIA T HAT :- WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW THE LD. CIT (A) WAS JUSTIFIED IN DIRECTING THE TPO TO EXCLUDE T HE COMPARABLES WITHOUT ANY PROPER FAR ANALYSIS? 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. SANDEN VIKAS INDIA L IMITED, THE TAXPAYER WAS EARLIER KNOWN AS SANDEN VIKAS (INDIA) LTD., ESTABLISHED IN 1982 IN THE NAME AND STYLE OF SANDEN VIKAS INDIA LTD.. THE TAXPAYER IS HOLDING 50% OF THE SHARES WH EREAS REMAINING 50% OF SHAREHOLDING IS WITH SANDEN INTERNATIONAL LT D., SINGAPORE ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 5 AND SANDEN CORPORATION, JAPAN. THE TAXPAYER IS MAN UFACTURER/ TRADER OF COMPRESSORS AND COMPONENT OF CAR AIR-COND ITIONING SYSTEM. THE TAXPAYER COMPANY HAS ESTABLISHED FACIL ITIES TO ASSEMBLE MODERN TYPE COOLING UNIT ASSEMBLY AND MANU FACTURE ALL TYPES OF HOUSE & PIPES WITH SHAFT SEAL TYPE OF FITT ING. THE TAXPAYER ALSO TRADES IN OTHER COMPONENTS OF CAR AIR-CONDITIO NING SYSTEMS LIKE SERPENTINE COILS, MULTI-FLOW CONDENSERS AND RECEIVE R DRIVE ETC., WHICH ARE PRODUCED BY ITS ASSOCIATE COMPANIES IN IN DIA. THE TAXPAYER IN ITS TP STUDY DEALT WITH AUTOMOBILE EQUI PMENT AND SYSTEMS CONSISTING MAINLY OF AUTO AIR-CONDITIONING SYSTEMS. 5. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER E NTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AE) AS UNDER :- S. NO. DESCRIPTION AMOUNT OF TRANSACTION METHOD USED BY ASSESSEE I. PURCHASE OF COMPONENTS 148.07 TNMM II. TRADED PURCHASE OF COMPONENTS 36.26 TNMM III. PAYMENT OF ROYALTY 3.47 TNMM IV. PAYMENT OF TECHNICAL KNOW HOW 1.98 TNMM V. PAYMENT FOR CAPITAL GOODS 0.77 TNMM VI. PAYMENT OF EVALUATION FEES 0.05 TNMM VII. EXPENSES PAID 0.04 TNMM VIII. EXPENSES REIMBURSEMENT RECEIVED (0.17) TNMM IX. SALE OF COMPONENTS (1.18) TNMM ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 6 6. THE TAXPAYER IN ITS TP STUDY TO BENCHMARK THE IN TERNATIONAL TRANSACTION QUA MANUFACTURING FUNCTIONS AGGREGATED ALL TRANSACTIONS USED TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH OP ERATING PROFIT / SALES (OP/SALES) AS PROFIT LEVEL INDICATOR (PLI). THE TAXPAYER MADE THE PAYMENT OF TECHNICAL KNOW-HOW AND ROYALTY AS PER PRIOR APPROVAL OF MINISTRY OF COMMERCE & INDUST RY AS WELL AS RESERVE BANK OF INDIA (RBI) FOR THE COMPRESSORS AND KITS RESPECTIVELY AS THE REIMBURSEMENT HAS BEEN STATED T O BE INEXTRICABLY LINKED TO THE MANUFACTURING FUNCTIONS PERFORMED BY THE TAXPAYER. THE TAXPAYER HAS NOT MADE SEPARATE B ENCHMARKING QUA TRADING SEGMENT. THE TAXPAYER SELECTED 31 COMP ARABLES WITH THE PLI AVERAGE OF 1.08% TO BENCHMARK THE INTERNATI ONAL TRANSACTIONS AS AGAINST PLI AVERAGE OF TAXPAYER AT 1.77% AND FOUND ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. 7. LD. TPO BY REJECTING THE ENTITY LEVEL ANALYSIS C OMPUTED THE PLI OF MANUFACTURING SECTOR AT 1.3%, REJECTED 30 CO MPARABLES OUT OF 31 CHOSEN BY THE TAXPAYER AND RETAINED ONLY ONE COMPARABLE, NAMELY, SUBROS LTD.. TPO INTRODUCED 5 NEW COMPARAB LES AND COMPUTED THEIR AVERAGE PLI AT 10.70% AND THEREBY CO MPUTED THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION AS UNDER :- ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 7 PARTICULARS AMOUNT IN INR TOTAL SALES OF MANUFACTURING SEGMENT 438,00,00,000 ARMS LENGTH MARGIN (%) 10.70% ARMS LENGTH MARGIN 468,660,000 ARMS LENGTH COST 3,911,340,000 OPERATING COST 4,300,100,000 INTERNATIONAL TRANSACTION OF PURCHASE 1,480,700,000 5% OF INTERNATIONAL TRANSACTION 74,035,000 DIFFERENCE IN THE ARMS LENGTH COST AND OPERATING COST FOR WHICH ADJUSTMENT IS REQUIRED TO BE MADE 388,760,000 PERCENTAGE OF PURCHASES MADE FROM AE TO TOTAL COST (RS.1480700000/- / RS.4300100000*100) 34.43% PROPORTIONATE DIFFERENCE FOR WHICH ADJUSTMENT IS REQUIRED TO BE MADE 133865941 8. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. C IT (A) BY WAY OF FILING THE APPEAL WHO HAS REJECTED ALL THE C OMPARABLES CHOSEN BY TPO AND COMPUTED THE ALP OF INTERNATIONAL TRANSACTIONS BY RETAINING SUBROS LIMITED HAVING AVERAGE PLI OF 1 4.12% AND THEREBY RESTRICTED THE ALP ADJUSTMENT TO RS.3,46,21 ,430/- BY PARTLY ALLOWING THE APPEAL. FEELING AGGRIEVED, BOTH THE TA XPAYER AS WELL AS REVENUE HAVE COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEALS. 9. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 8 10. UNDISPUTEDLY, LD TPO COMPUTED THE AVERAGE PLI O F 6 COMPARABLES AT 10.70% FOR BENCHMARKING THE INTERNAT IONAL TRANSACTIONS AND FINAL SET OF COMPARABLES IS AS UND ER :- S.NO. COMPANY OP/SALES(%) I. BANCO PRODUCTS (INDIA) LTD. 15.78 II. ECO AUTO COMPONENT LTD. 10.66 III. SPACO TECHNOLOGIES (INDIA) PVT. LTD. 16.84 IV. STANDARD RADIATORS PVT. LTD. 7.58 V. TATA TOYO RADIATOR LTD. 8.91 VI. SUBROS LTD. 4.47 AVERAGE 10.7 11. SO FAR AS APPEAL FILED BY THE REVENUE IS CONCER NED, THEY HAVE CHALLENGED THE IMPUGNED ORDER ON THE GROUND TH AT THE LD. CIT(A) HAS ERRED IN DIRECTING THE TPO TO EXCLUDE CO MPARABLES WITHOUT HAVING ANY FAR ANALYSIS. 12. LD. DR FOR THE REVENUE CONTENDED THAT LD. CIT ( A) WITHOUT GIVING AN OPPORTUNITY OF BEING HEARD TO THE TPO REJ ECTED 5 COMPARABLES OUT OF FINAL SET OF 6 COMPARABLES WITHO UT CONDUCTING ANY FAR ANALYSIS WHEREAS METHOD ADOPTED BY THE TPO IN ITS TP ANALYSIS TO BENCHMARK THE INTERNATIONAL TRANSACTION IS SCIENTIFIC AND RELIED UPON THE ORDER PASSED BY THE TPO. 13. HOWEVER, ON THE OTHER HAND, APPEAL FILED BY THE TAXPAYER REVOLVES AROUND THE SOLE FACT THAT SO FAR AS A MANU FACTURER IS CONCERNED, THERE ARE TWO SEGMENTS : (I) NON-CORE AU TO COMPONENTS AND (II) CORE AUTO COMPONENTS. ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 9 14. LD. AR FOR THE TAXPAYER CONTENDED THAT SINCE TA XPAYER IS MANUFACTURING NON-CORE AUTO COMPONENT VIZ. AIR-COND ITIONER COMPRESSORS AND COMPONENTS USED FOR COOLING INTERIO RS OF THE CAR, IT CANNOT BE COMPARED WITH MANUFACTURING COMPANY WH ICH IS INTO THE MANUFACTURING OF CORE COMPONENTS WITHOUT WHICH CAR CANNOT RUN. IT IS ALSO ONE OF THE CONTENTIONS OF THE LD. AR FOR THE TAXPAYER THAT WITHOUT NON-CORE AUTO COMPONENT CAR CAN RUN. SO, THE CORE AUTO COMPONENTS ARE ONE WITHOUT WHICH A VEHICLE CAN NOT RUN WHEREAS WITHOUT AIR-CONDITIONER COMPRESSORS AND COM PONENTS, CERTAIN AUTOMOBILES, SUCH AS, BUSES, TRUCKS, TRACTO RS, ETC. CAN RUN WHEREAS WITHOUT RADIATORS AND CARBURETORS, NO AUTOM OBILE CAN RUN. 15. LD. AR FOR THE TAXPAYER SUPPORTED THE ORDER PAS SED BY THE LD. CIT (A) TO THE EXTENT THAT LD. CIT (A) REJECTED 5 C OMPARABLES ON THE BASIS OF PRODUCT DISSIMILARITY AND ON ACCOUNT O F FAILURE OF QUANTITATIVE FILTERS IN SOME CASES. 16. WHEN WE EXAMINE THE IMPUGNED ORDER PASSED BY TH E LD. CIT(A) IN THE LIGHT OF THE CONTENTIONS RAISED BY TH E LD. AR AND LD. DR FOR THE PARTIES TO THE APPEAL, IT HAS COME ON RE CORD THAT THE LD. CIT (A) HAS PROCEEDED SUMMARILY TO REJECT THE COMPA RABLES CHOSEN BY THE TPO WITHOUT CONDUCTING ANY FAR ANALYSIS AND WITHOUT EXAMINING THE COMPARABLES BEING PART OF CORE OR NON -CORE AUTO COMPONENT SEGMENT AS CONTENDED BY THE LD. AR FOR TH E TAXPAYER. ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 10 FOR READY PERUSAL, OPERATIVE PART OF THE ORDER PASS ED BY THE LD. CIT(A) IS EXTRACTED AS UNDER :- 18. DURING THE COURSE OF PROCEEDINGS, THE APPELLAN T COMPANY ARGUED THAT M/S. SUBROS LTD. WAS ALSO ENGAGED IN MA NUFACTURE OF AIR-CONDITIONING SYSTEMS AND IT SHOULD BE ADOPTE D. THE TPO HAS ACCEPTED THE CONTENTION OF THE APPELLANT COMPAN Y AND FOLLOWING COMPANIES WERE SELECTED:- S.NO. COMPANY OP/SALES (%) 1 BANCO PRODUCTS INDIA LTD. 15.78 2 ECO AUTO COMPONENT LTD. 10.66 3 SPACO TECHNOLOGIES PVT. LTD. 16.84 4 STANDARD RADIATORS PVT. LTD. 7.58 5 TALA TOYO RADIATOR LID. 8.91 6 SUBROS LTD. 4.47 AVERAGE 10.7 19. THE APPELLANT COMPANY HAS OBJECTED TO THE SELE CTION OF THESE COMPARABLES ON THE GROUND THAT NO SEARCH MATR IX WAS FURNISHED AND NO BASIS OF SELECTION HAS BEEN CONFRO NTED TO THE APPELLANT COMPANY. IT HAS STATED THAT APPELLANT HAS FAILED TO REJECT THE COMPANIES WHICH HAD MATERIAL CONSUMPTION OF LESS THAN 60% TO THE COST AS POINTED OUT BY HIM. HE HAS GIVEN THE FOLLOWING CHART:- S. NO. COMPANY A.Y. 2011-12 OP (%) ADJUSTED 1 BAJAJ MOTORS LTD. 5.14% 4.68% 2 CALCAST FERROUS LTD. 2.00% 1.54% 3 INZI CONTROLS INDIA LTD. 3.43% 4.07% 4 K R RUBBERITE LTD. 3.90% 3.45% 5 LINERS INDIA LTD. 4.81% 2.19% 6 MAHLE FILTER SYSTEMS (INDIA) LTD. 5.74% 5.66% 7 MULTITEX FILTERS PVT. LTD. 1.84% -2.68% 8 SIBAR AUTO PARTS LTD 2.24% 1.10% 9 STANDARD RADIATORS PVT. LTD 7.58% 5.23% 10 SUBROS LTD. 4.47% 4.12% 11 TATA TOYO RADIATOR LTD. 8.91% 8.85% 12 TEKSONS LTD. -2.71% -5.08% 13 WESTERN THOMSON (INDIA) LTD. 4.73% 3.67% AVERAGE 4.01% 2.83% ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 11 20. AFTER CONSIDERING THE SUBMISSIONS OF THE APPELL ANT, THE ASSESSING OFFICER REJECTED THE FEW COMPANIES BUT ST ILL ACCEPTED THE 2 COMPANIES BANCO PRODUCTS INDIA LTD. & ECO AUT O COMPONENT LTD. WHICH WERE SHOWING RAW MATERIAL LESS THAN 60%. AR STATES THAT TPO HAS CHERRY PICKED THE COMPA RABLES FOUND BY HIM IN RESPECT OF SPACE TECHNOLOGIES INDIA PVT. LTD., IT THAT THIS COMPANY WAS ENGAGED IN MAKING CARBURETORS FOR THE SCOOTER INDUSTRY. HE HAS PRODUCED THE COPY OF ANNUA L REPORT, WHEREBY THE COMPANY PROFILE AS REPRODUCED, AS UNDER :- SPACO HAD TECHNICAL TIE UPS WITH RENOWNED COMPANIES FROM EUROPE AS WELL AS JAPAN FOR A LONG PERIOD. WE HAVE ALSO DEVELOPED OUR OWN TECHNICAL CAPABILITY TO DESIGN AN D MANUFACTURE CARBURETTORS WITH VENTURE DIAMETERS RAN GING FROM 7 MM TO 30 MM TO SUIT 2STROKE AND 4STROKEENGINES OF 22CC TO 500CC. WE ARE COMMITTED TO ACHIEVE TOTAL CUSTOMER S ATISFACTION BY MAKING, AVAILABLE TO OUR CUSTOMERS, PRODUCTS THA T CONFORM TO INTERNATIONAL STANDARDS ON QUALITY, COST AND DELIVE RY. 21. I AGREE WITH THE VIEW OF APPELLANT THAT SPACO TECHNOLOGIES IS DEALING IN A TOTALLY DIFFERENT SEGM ENT AND THEREFORE, IS NOT PROPER COMPARABLE. 22. THE APPELLANT COMPANY IN GROUND NOS. 11 AND 12 HAS REQUESTED THAT WORKING CAPITAL ADJUSTMENT SHOULD BE GIVEN AND BENEFIT OF PLUS/MINUS (5%) SHOULD BE PROVIDED. 23. I HAVE GONE THROUGH THE SUBMISSIONS. THE SPECI FIC SUBMISSIONS OF THE APPELLANT HAVE BEEN CONSIDERED A BOVE. THE APPELLANT COMPANY IS ENGAGED IN MANUFACTURING & TRA DING OF AUTOMOBILE AIR-CONDITIONING PARTS. HE IS MANUFACTUR ING & INSTALLING AIR-CONDITIONERS AS OEM EQUIPMENTS OF BR ANDED CARS LIKE MARUTI. OUT OF 31 ORIGINAL OR 13 SUBSEQUENT CO MPARABLES SELECTED DURING THE COURSE OF TP PROCEEDINGS, NONE OF THE COMPANIES ARE ENGAGED IN ANY ACTIVITY EVEN REMOTELY SIMILAR TO ACTIVITY OF APPELLANT COMPANY ON A FAR ANALYSIS. SI MILARLY, THE COMPARABLES SELECTED BY THE TPO ARE NOT ENGAGED IN ANY SIMILAR ACTIVITY NAMELY E.G. BANCO PRODUCTS INDIA LTD. & EC O AUTO COMPONENT LTD. FAILED TO PASS EVEN THE QUANTITATIVE FILTERS AND REMAINING TWO STANDARD RADIATORS PVT. LTD. AND TATA TOYO RADIATOR LTD. ARE ENGAGED IN MANUFACTURE OF RADIATO RS WHICH ARE INSTALLED IN THE VEHICLE TO COOL THE ENGINE AND NOT THE VEHICLE. 24. THIS LEAVES US WITH ONLY ONE COMPANY NAMELY M/ S. SUBROS LTD. WHICH WAS SUGGESTED BY THE APPELLANT CO MPANY ITSELF. A SEARCH ON 'GOOGLE' REVEALS THAT SEARCH FO R 'AUTOMOBILE AIR-CONDITIONING COMPANIES' THROWS ONLY 2 NAMES NAM ELY M/S. SUBROS LTD. AND M/S. SANDEN VIKAS INDIA LTD. I.E. T HE APPELLANT COMPANY. THIS SHOWS THAT ONLY M/S. SUBROS LTD. OUT OF COMPANIES AVAILABLE IN PUBLIC DOMAIN IS ENGAGED IN ACTIVITIES ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 12 SIMILAR TO THAT OF THE APPELLANT COMPANY. A PERUSAL OF THE BALANCE SHEET OF M/S. SUBROS LTD. SHOWS THAT COMPAN Y IS ENGAGED IN MANUFACTURING AUTOMOBILE AIR-CONDITIONIN G SYSTEMS AND FAN MOTOR ASSEMBLY. THE TURNOVER OF THE COMPANY IS ABOUT 1203 CRORES AGAINST THE TOTAL TURNOVER OF 485 CRORE S OF THE APPELLANT. THUS, BOTH COMPANIES BELONGED TO A SIMIL AR CLASS OF MEDIUM TURNOVER COMPANIES. THE TURNOVER OF FAN MOTOR ASSEMBLY IN SUBROS IS JUST AROUND 17 CRORES OF THE TOTAL TURNOVERS OF 1203 CRORES WHICH IS JUST ABOUT ONE AND A HALF P ERCENT OF TOTAL TURNOVERS AND IS NOT LIKELY TO HAVE ANY IMPACT ON T HE OVERALL PROFITABILITY. AS FAR AS THE SEGMENTAL REPORTING IS CONCERNED, IT IS REPORTED AS UNDER.- 'THE GROUP'S BUSINESS ACTIVITY-FALLS WITHIN A SINGL E PRIMARY BUSINESS SEGMENT I.E., AUTOMOTIVE AIR-CONDITIONING SYSTEMS (WITH OR WITHOUT FAN MOTOR ASSEMBLY) AND PARTS THER EOF EXPORT SALES CONSTITUTE AN INSIGNIFICANT PORTION OF THE TO TAL BUSINESS OF THE GROUP. HENCE, THERE IS NO GEOGRAPHICAL SEGMENT AS WELL. THEREFORE, THE DISCLOSURE REQUIREMENTS OF ACCOUNTIN G STANDARD - 17 ON 'SEGMENT REPORTING' ISSUED BY THE INSTITUTE O F CHARTERED ACCOUNTANTS OF INDIA ARE NOT APPLICABLE.' 25. THE ABOVE PROFILE OF THE COMPANY SHOWS THAT ON LY COMPANY IN PUBLIC DOMAIN WHICH SATISFIED ALL THE FI LTERS AND CONDITIONS ADOPTED BY TPO AND APPELLANT IS M/S. SUB ROS INDIA LTD. ON A FAR ANALYSIS ALSO, IT FITS AS THE BEST RA THER THE ONLY COMPARABLE AVAILABLE WITH THE ASSESSEE OR THE TPO. 26. THE PLI OF M/S. SUBROS INDIA LTD. AFTER PROVIDI NG WORKING CAPITAL ADJUSTMENT AS WORKED OUT BY APPELLA NT IS AT 4.12%. THE ADJUSTMENT IS WORKED OUT AS UNDER:- PARTICULARS AMOUNT IN INR TOTAL SALES OF MANUFACTURING SEGMENT 438,00,00,000 ARMS LENGTH MARGIN (%) 4.12% ARMS LENGTH MARGIN 18,04,56,000 ARMS LENGTH COST 419,95,44,000 OPERATING COST 430,01,00,000 DIFFERENCE IN THE ARMS LENGTH COST & OPERATING COST FOR WHICH ADJUSTMENT IS REQUIRED TO BE MADE 10,05,56,000 PERCENTAGE OF PURCHASES MADE FROM AE TO TOTAL COST 34.43% PROPORTIONATE DIFFERENCE FOR WHICH ADJUSTMENT IS REQUIRED TO BE MADE 3,46,21,430 ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 13 SINCE THERE IS ONLY ONE COMPARABLE PRICE, NO ADJUST MENT OF 5% SHALL NOT BE PERMISSIBLE TO APPELLANT COMPANY AS PE R THE PROVISO TO SECTION 92C(2). 17. BARE PERUSAL OF THE AFORESAID ORDER GOES TO PRO VE THAT THE LD. CIT(A) HAS FIRSTLY MADE UP HIS MIND TO SELECT M/S. SUBROS LIMITED AS THE COMPARABLE AND THEN DISCUSSED ITS COMPARABIL ITY WITHOUT CONDUCTING THE FAR ANALYSIS OF OTHER COMPARABLES AN D WITHOUT LOOKING INTO IF THE COMPARABLES IN THIS CASE ARE TO BE CHOSEN ON THE BASIS OF CORE AND NON-CORE FUNCTION OF AUTOMOBILE C OMPANIES. NO DOUBT, THE LD. CIT (A) HAS USED WORD FAR ANALYSIS A T MANY PLACES IN THE IMPUGNED ORDER BUT FAR ANALYSIS OF COMPARABL ES, IF ANY CONDUCTED BY THE LD. CIT (A) IS NOT VISIBLE IN THE ORDER. 18. LD. AR FOR THE TAXPAYER BY RELYING UPON THE DEC ISION RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. (2015-TII-33-HC-DEL-T P) AND ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNA L IN LG ELECTRONICS INDIA P. LTD. VS. ACIT (TS-11-ITAT-2013 -(DEL.)-TP) CONTENDED THAT UNDER TNMM PRODUCT, COMPARABILITY IS THE BASIS FOR COMPARABILITY OF THE TESTED PARTY VIS--VIS THE COMPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACTION. 19. IN RAMPGREEN SOLUTIONS PVT. LTD. (SUPRA), HONBLE HIGH COURT HELD THAT, A HIGHER PRODUCT AND FUNCTIONAL SIMILARITY ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 14 WOULD STRENGTHEN THE EFFICACY OF THE METHOD IN ASCE RTAINING A RELIABLE ALP. BUT WE ARE OF THE CONSIDERED VIEW THAT ALL THESE FACTS HAVE NOT BEEN TAKEN CARE OF BY THE LD. CIT (A ) WHILE REJECTING THE COMPARABLES CHOSEN BY THE TPO. 20. SO, WE ARE OF THE CONSIDERED VIEW THAT DISTINCT ION OF THE CORE AND NON-CORE AUTO COMPONENTS IS THE KEY TO BENCHMAR K THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE TAXPAY ER IN THIS CASE AND THIS VIEW IS SUPPORTED WITH THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN MINDA ACOUSTIC LTD. (NOW M INDA INDUSTRIES LTD.) (TS-468-ITAT-2019 (DEL)-TP) . 21. COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MINDA ACOUSTIC LTD (SUPRA) HAD MADE THE DISTINCTION BETWEEN CORE AND NON-CORE AUTO COMPONENTS AS PER CLAUSE (B) & (H) OF RULE 10TA OF THE INCOME-TAX RULES, 1962 APPLICABLE TO THE IDENTI CAL FACTS OF THIS CASE BY RETURNING FOLLOWING FINDINGS :- 14. BASED ON THIS DISTINCTION BROUGHT IN THE STATU TE, THE LD. DRP HAS REJECTED MOST OF THE COMPARABLES SELECTED B Y THE TPO HOLDING THAT THESE COMPARABLES WERE MANUFACTURING C ORE PRODUCTS WHICH CANNOT BE COMPARED WITH THE ASSESSEE WHICH IS PURELY INTO PRODUCTION OF NONCORE AUTO COMPONENTS M AINLY VARIOUS TYPES OF HORNS. FROM THE PERUSAL OF THE DEF INITION OF CORE AUTO COMPONENTS AS GIVEN IN THE RULES, IT CA N BE INFERRED THAT CORE AUTO COMPONENTS ARE CRUCIAL PART OF AUTOM OBILE THAT REQUIRES SOPHISTICATED TECHNOLOGY FOR MANUFACTURING AND SUCH COMPONENTS ARE VERY LIFELINE LIKE THE HEART AND BRA IN OF AUTOMOBILE WHICH ARE VITAL FOR POWER PERFORMANCE, A CTUAL RUNNING AND STABILITY OF THE AUTOMOBILE. LIKE ENGIN ES AND ENGINE PARTS ARE INEXTRICABLY LINK WITH THE PERFORMANCE OF THE VEHICLE, WITHOUT WHICH VEHICLE CANNOT MOVE; TRANSMISSION SYS TEM WHICH ASSISTS IN RUNNING OF CAR; STEERING AND STEERING SY STEMS, GEARS ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 15 AND CLUTCHES; AXELS AND WHEELS; SUSPENSIONS WHICH B ALANCES THE VEHICLE; BREAKS, ETC. IN OTHER WORDS, WITHOUT THE C ORE PART NEITHER THE AUTOMOBILE CAN RUN NOR CAN IT FUNCTION. WHEREAS NON-CORE AUTO COMPONENTS WHICH ARE NOT COVERED UNDER THE COR E COMPONENTS COULD BE LIKE ACCESSORIES, EQUIPMENT, VE HICLE PARTS SUCH AS HEAD LIGHTS, WIPERS, DASH BOARD EQUIPMENT, HORNS, ETC., WHICH ARE USED IN THE VEHICLE BUT THEY ARE NOT VITA L FOR THE ACTUAL RUNNING OF THE VEHICLE. 22. FOLLOWING THE ORDER (SUPRA) PASSED BY THE COORD INATE BENCH OF THE TRIBUNAL MAKING DISTINCTION IN CORE AND NON- CORE AUTO COMPONENTS, WE ARE OF THE CONSIDERED VIEW THAT BENC HMARKING IN THIS CASE IS REQUIRED TO BE CARRIED OUT WITH FAR AN ALYSIS OF THE COMPARABLES KEEPING IN VIEW THE DISTINCTION BETWEEN CORE AND NON- CORE AUTO COMPONENTS BECAUSE A COMPANY MANUFACTURIN G CORE COMPONENTS CANNOT BE COMPARED WITH COMPANY MANUFACT URING NON-CORE AUTO COMPONENTS. 23. WHEN WE FURTHER EXAMINE THE CONTENTION RAISED B Y THE LD. AR FOR THE TAXPAYER THAT APART FROM M/S. SUBROS LTD ., JAGAN LAMPS LTD. AND SWARAJ AUTOMOTIVES LTD. ARE THE SUITABLE C OMPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACTIONS, IT HAS CO ME ON RECORD THAT JAGAN LAMPS LTD. IS MANUFACTURER OF AUTO BULBS , HALOGEN BULBS, HEAD LIGHTS, AUTOMOTIVE ELECTRICAL SPARES AN D OTHER RELATED PRODUCTS AND SWARAJ AUTOMOTIVES LTD. IS MANUFACTURE R OF SEATS OF A KIND USED FOR AUTOMOBILES. WE ARE CONSTRAINED TO R ECORD THAT WHEN WE GO BY THE PRODUCT COMPARABILITY AS HELD BY HONB LE HIGH COURT IN RAMPGREEN SOLUTIONS PVT. LTD. (SUPRA) RELIED UPON BY THE LD. ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 16 AR FOR THE TAXPAYER, AGAIN THERE IS NO COMPARABILIT Y BETWEEN THE TAXPAYER AND SWARAJ AUTOMOTIVES LTD.& JAGAN LAMPS L TD.. 24. LD. AR FOR THE TAXPAYER FURTHER CONTENDED THAT THE MATTER MAY BE REMITTED BACK TO THE TPO FOR THE LIMITED ISS UE OF USE OF COMPARABILITY AND COMPUTATION OF PLI OF SWARAJ AUTO MOTIVES LTD.& JAGAN LAMPS LTD.. WE ARE OF THE CONSIDERED V IEW THAT IN VIEW OF THE SLIPSHOT TP ANALYSIS MADE BY THE LD. TP O AS WELL AS LD. CIT (A) CONDITIONAL REMAND CANNOT BE MADE. AT THE SAME TIME, WE ARE OF THE CONSIDERED VIEW THAT TO DETERMINE THE AR MS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE TAXPAYER, FRESH OPEN ENDED TP ANALYSIS IS REQUIRED TO BE MADE BY TH E TPO KEEPING IN VIEW THE FACTUM OF PRODUCT COMPARABILITY AS WELL AS KEEPING IN VIEW THE DISTINCTION BETWEEN THE CORE AND NON-CORE AUTO COMPONENT MANUFACTURED FOR THE PURPOSE OF COMPARABILITY OF TH E COMPANIES VIS--VIS THE TAXPAYER. 25. THE TAXPAYER HAS ALSO CHALLENGED NON-GRANT OF B ENEFIT OF ARMS LENGTH RANGE OF +/- 5% UNDER THE SECOND PROVI SO OF SECTION 92C (2) OF THE ACT. SINCE THE CASE IS REMITTED BAC K TO THE TPO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEI NG HEARD TO THE TAXPAYER, THE TPO IS DIRECTED TO DECIDE THIS ISSUE IN ACCORDANCE WITH THE PROVISIONS CONTAINED UNDER RULE 10TA. ITA NO.348/DEL./2017 ITA NO.826/DEL./2017 17 26. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, APPEA L FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE TAXPAYER IS PARTLY ALLOWED FOR STATISTICAL P URPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF DECEMBER, 2019. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 31 ST DAY OF DECEMBER , 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.