Igarashi Motors India Ltd., CHENNAI V. DCIT, CHENNAI

ITA 878/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7586 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN C BHARATH
• Assessee Lawyers: T BANUSEKAR
• Keywords: Related party transaction; Business income; Transfer pricing; Earning of tax free income; Commercial expediency
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO. 878/MDS/2014 ( )( / ASSESSMENT YEAR : 2009-10 M/S IGARASHI MOTORS INDIA LTD., PLOT NO.B-12 TO B-15, PHASE II, MEPZ SEZ, TAMBARAM, CHENNAI - 600 045. PAN : AAACC 1305 R V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. T. BANUSEKAR, FCA -.+, / 0 / RESPONDENT BY : SH. ARUN C. BHARATH, CIT 1 / 2% / DATE OF HEARING : 03.02.2016 3') / 2% / DATE OF PRONOUNCEMENT : 24.03.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER, CONSEQUENT TO THE DIRECTION OF THE DISPUTE RESOLUTION PANEL, CHENNAI, FOR THE ASSESSMENT YEAR 2009-10. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE E XTENT OF 2 I.T.A. NO.878/MDS/14 ` 88,36,545/- UNDER SECTION 14A OF THE INCOME-TAX ACT , 1961 (IN SHORT 'THE ACT'). 3. SH. T. BANUSEKAR, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE INVESTED IN EQUITY SHAR ES OF BOSH ELECTRICAL DRIVES INDIA PRIVATE LTD. AND IJT PLASTI CS AND TOOLS PRIVATE LTD. ACCORDING TO THE LD. REPRESENTATIVE, THE INCOME DERIVED FROM BOTH BOSH ELECTRICAL DRIVES INDIA PRIVATE LTD. AND IJT PLASTICS AND TOOLS PRIVATE LTD. ARE EXEMPTED FROM TAXATION. ACCORDING TO THE LD. REPRESENTATIVE, NO INCOME WAS DERIVED FROM THESE INVESTMENTS DURING THE YEAR UNDER CONSIDERATION. P LACING HIS RELIANCE ON THE JUDGMENT OF DELHI HIGH COURT IN CHE MINVEST LIMITED V. CIT (2015) 94 CCH 2, THE LD. REPRESENTATIVE SUBM ITTED THAT WHEN THE ASSESSEE HAD NOT EARNED ANY TAXABLE INCOME DURI NG THE YEAR UNDER CONSIDERATION, THEN THE CORRESPONDING EXPENDI TURE CANNOT BE WORKED OUT FOR DISALLOWANCE. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THERE IS NO QUESTION OF DISALLOWANC E UNDER SECTION 14A OF THE ACT, ESPECIALLY WHEN THERE WAS NO INCOME EARNED BY THE ASSESSEE FROM THE INVESTMENTS MADE. ACCORDING TO T HE LD. REPRESENTATIVE, THE DELHI HIGH COURT REVERSED THE D ECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN I.T.A. NO.87/DEL/ 2008. 3 I.T.A. NO.878/MDS/14 4. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT TH E INVESTMENTS WERE MADE NOT FOR THE PURPOSE OF EARNING ANY EXEMPT INCOME BUT FOR THE PURPOSE OF BUSINESS EXPEDIENCY. ACCORDING TO THE LD. D.R., BOTH BOSH ELECTRICAL DRIVES INDIA PRIVATE LTD. AND IJT PLASTICS AND TOOLS PRIVATE LTD. ARE SISTER CONCERNS OF THE ASSES SEE, THEREFORE, THE INVESTMENTS WERE MADE DUE TO COMMERCIAL EXPEDIE NCY. ACCORDING TO THE LD. REPRESENTATIVE, BOSH ELECTRICA L DRIVES INDIA PRIVATE LTD. WAS A JOINT VENTURE COMPANY WITH M/S B OSH ELECTRICALS. SIMILARLY, IJT PLASTICS AND TOOLS PRIVATE LTD. WAS ALSO FORMED AS JOINT VENTURE WITH YANG INTERNATIONAL GROUP. THERE FORE, ACCORDING TO THE LD. REPRESENTATIVE, THE INVESTMENTS MADE BY THE ASSESSEE IN THE JOINT VENTURE COMPANIES ARE ONLY FOR COMMERCIAL EXPEDIENCY AND NOT FOR EARNING EXEMPT INCOME. THE LD. REPRESENTAT IVE PLACED HIS RELIANCE ON THE DECISION OF THIS BENCH OF THE TRIBU NAL IN EIH ASSOCIATED HOTELS LTD. V. DCIT (2013) 9 TMI 604. 5. ON THE CONTRARY, SHRI ARUN C. BHARATH, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT DURING THE YEAR UNDE R CONSIDERATION, RULE 8D OF INCOME-TAX RULES, 1962 IS VERY MUCH APPL ICABLE. THE ISSUE WHETHER NO INCOME WAS DERIVED FROM THE INVEST MENT WAS CONSIDERED BY SPECIAL BENCH OF THIS TRIBUNAL IN CHE MINVEST LIMITED 4 I.T.A. NO.878/MDS/14 (SUPRA) AND THE SPECIAL BENCH OF THIS TRIBUNAL FOUN D THAT WHERE THE DIVIDEND IS EXEMPTED UNDER SECTION 10(34) OF THE AC T, THE INTEREST PAID ON THE BORROWED CAPITAL, WHICH IS UTILIZED FOR PURCHASE OF SHARES, IS HIT BY SECTION 14A OF THE ACT IRRESPECTI VE OF THE FACT WHETHER THE STOCK WAS HELD AS STOCK-IN-TRADE. THE TRIBUNAL FURTHER FOUND THAT THE BUSINESS INCOME FROM DIVIDEND WOULD NOT MAKE ANY DIFFERENCE UNDER SECTION 14A OF THE ACT. THE LD. D .R. FURTHER SUBMITTED THAT EVEN THOUGH NO INCOME WAS EARNED, TH E ASSESSEE HAS TO NECESSARILY INCUR EXPENDITURE FOR TAKING DEC ISION IN MAKING INVESTMENTS. ACCORDING TO THE LD. D.R., EARNING OF INCOME IS NOT A SINE QUA FOR NOT ALLOWING ANY EXPENDITURE. EVEN IN A YEAR NO INCOME WAS EARNED OR RECEIVED BY THE ASSESSEE, DISA LLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT. IN VIEW OF T HE ABOVE, THE DISPUTE RESOLUTION PANEL HAS RIGHTLY CONFIRMED THE DECISION OF THE TRANSFER PRICING OFFICER, THEREFORE, NO INTERFERENC E IS CALLED FOR. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT BOSH ELECTRICAL DRIVES INDIA PRIVATE L TD. AND IJT PLASTICS AND TOOLS PRIVATE LTD. ARE JOINT VENTURE C OMPANIES. IN OTHER WORDS, THESE ARE SISTER CONCERNS OF THE ASSES SEE. THE 5 I.T.A. NO.878/MDS/14 INVESTMENTS MADE IN THE SISTER CONCERNS OF THE ASSE SSEE ARE FOR COMMERCIAL EXPEDIENCY. IT IS NOT THE CASE OF THE RE VENUE THAT THE SISTER CONCERNS, WHICH RECEIVED THE INVESTMENTS, DI VERTED THE FUNDS FOR NON-BUSINESS PURPOSES. THEREFORE, IN VIEW OF T HE JUDGMENT OF APEX COURT IN S.A. BUILDERS LTD. V. CIT (2007) 288 ITR 1, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE INVE STMENTS MADE BY THE ASSESSEE IN THE EQUITY SHARES OF THE SISTER CON CERNS, WHICH WERE ESTABLISHED BY JOINT VENTURE, HAVE TO BE NECESSARIL Y TREATED AS FOR BUSINESS PURPOSE. THEREFORE, AS RIGHTLY FOUND BY T HIS TRIBUNAL BY MAJORITY DECISION IN EIH ASSOCIATED HOTELS LTD. (SU PRA), THE DIVIDEND INCOME EARNED BY THE ASSESSEE, IF ANY, FROM SUBSIDI ARY COMPANIES, IS INCIDENTAL ONE, THEREFORE, THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDIARY COMPANIES CANNOT BE RECKONED FOR DISALLOWANCE UNDER SECTION 14A OF THE ACT. A SIMILAR VIEW WAS T AKEN BY DELHI HIGH COURT IN CIT V. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. IN ITA 605/2012 DATED 15.01.2013, A COPY OF WHICH IS AVAIL ABLE AT PAGE 80 OF THE PAPER-BOOK. THE MUMBAI BENCH OF THIS TRIBUN AL IN JM FINANCIAL LTD. V. ADDL. CIT IN ITA NO.4521/MUM/2012 HAS ALSO TAKEN A SIMILAR VIEW. THE ASSESSEE HAS PRODUCED A COPY O F THE ORDER AT PAGE 93 OF THE PAPER-BOOK. THE ASSESSEE HAS ALSO P LACED RELIANCE ON THE DECISION OF DELHI BENCH OF THIS TRIBUNAL IN INTERGLOBE 6 I.T.A. NO.878/MDS/14 ENTERPRISES LTD. V. DCIT (2014) 40 CCH 22. SINCE T HE INVESTMENTS WERE MADE IN THE SISTER CONCERNS AS FOUND BY THIS T RIBUNAL IN EIH ASSOCIATED HOTELS LTD. (SUPRA), THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT. ACCORDINGLY, THE ORDERS OF THE LOWER AUTH ORITIES ARE SET ASIDE AND THE DISALLOWANCE MADE BY THE ASSESSING OF FICER IS DELETED. 7. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO ADJUSTMENT OF ARM'S LENGTH PRICE TO THE EXTENT OF ` 9,30,00,000/-. 8. SH. T. BANUSEKAR, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE-COMPANY IS ENGAGED ITSE LF IN THE BUSINESS OF MANUFACTURING DC MICRO MOTORS AND SUB-A SSEMBLIES FOR DC MOTORS. THE ASSESSEE-COMPANY IS A JOINT VENTURE BETWEEN CROMPTON GREAVES LIMITED AND IGARASHI ELECTRIC WORK S LTD., JAPAN. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE S OLD SUB- ASSEMBLIES FOR DC MOTORS TO ITS ASSOCIATE ENTERPRIS E. BY ADOPTING TRANSACTION NET MARGIN METHOD, THE ASSESSEE COMPARE D THE TRANSACTION OF THE ASSESSEE WITH THREE SIMILARLY PL ACED COMPANIES, NAMELY, SIBAR AUTO PARTS LTD., K.C. DIESELS LTD. AN D SUYAAN TRANSMISSION LTD. THE TRANSFER PRICING OFFICER REJ ECTED THE 7 I.T.A. NO.878/MDS/14 COMPARABLES SELECTED BY THE ASSESSEE ON THE GROUND THAT THE THREE COMPARABLES SELECTED BY THE ASSESSEE ARE PERSISTENT LY LOSS MAKING COMPANIES, THEREFORE, IT CANNOT BE COMPARED. THE T RANSFER PRICING OFFICER SELECTED LUCAS TVS AS COMPARABLE AND MADE A DJUSTMENT OF ` 9,30,00,000/-. 9. REFERRING TO THE PROFIT RATIO OF THE ASSESSEE, T HE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ALSO PERSISTENTLY MAKING LOSS. WHEN THE TRANSFER PRICIN G OFFICER CAME TO A CONCLUSION THAT THE COMPARABLES SELECTED BY THE A SSESSEE ARE MAKING PERSISTENT LOSS AND THE ASSESSEE IS ALSO EQU ALLY SUFFERING PERSISTENT LOSS, THEREFORE, THE COMPARABLES SELECTE D BY THE ASSESSEE CANNOT BE REJECTED TOTALLY BY THE TRANSFER PRICING OFFICER AND THE DISPUTE RESOLUTION PANEL. REFERRING TO THE INTERNAL COMPARABLES, THE LD. REPRESENTATIVE SUBMITTED THAT WHEN THE ASSESSEE SOLD THE MANUFACTURED PRODUCTS TO ITS ASSO CIATE ENTERPRISE AS WELL AS NON-ASSOCIATE ENTERPRISE, THE PREFERRED COMPARABLE SHOULD BE THE INTERNAL COMPARABLES AS AGAINST THE E XTERNAL COMPARABLES PARTICULARLY, WHEN THERE ARE NO EXTERNA L COMPARABLE IN THE SAME LINE OF BUSINESS. REFERRING TO THE LUCAS TVS, THE LD. REPRESENTATIVE SUBMITTED THAT THIS TVS GROUP OF COM PANY WAS 8 I.T.A. NO.878/MDS/14 ESTABLISHED MORE THAN 50 YEARS AGO AND THEY HAVE MA DE THEIR MARKET IN THE AUTOMOBILE INDUSTRY. HOWEVER, THE AS SESSEE- COMPANY IS RELATIVELY A NEW ENTRANT TO THE INDUSTRY . THE EXPORTS OF LUCAS TVS LTD. ARE LIMITED WHEN COMPARED TO THE ASS ESSEE- COMPANY. THE PRODUCT APPLICATION OF LUCAS TVS LTD. IS FOR COMMERCIAL VEHICLES, CARS, TWO WHEELERS, TRACTORS E TC., WHEREAS THE PRODUCT APPLICATION OF THE ASSESSEE-COMPANY IS ONLY IN CARS. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE RE IS NO FUNCTIONAL SIMILARITY BETWEEN THE ASSESSEE AND THE COMPARABLE SELECTED BY THE TRANSFER PRICING OFFICER, NAMELY LUCAS TVS. TH E LD. REPRESENTATIVE FURTHER SUBMITTED THAT THE LUCAS TVS HAS AFTER SALES PRESENCE IN INDIA, WHEREAS, THE ASSESSEE-COMPANY IS NOT PROVIDING ANY AFTER SALES SERVICE. LUCAS TVS HAS TRANSACTION S WITH RELATED PARTIES, NAMELY, SUBSIDIARIES. LUCAS TVS SELLS DIR ECTLY TO THE COMPANIES LIKE TATA MOTORS, MAHINDRA, ETC. HOWEVER , THE ASSESSEE-COMPANY SELLS THE MANUFACTURED PRODUCTS TO THEIR OWN VENDORS. THUS, THERE IS A VAST DIFFERENCE IN THE BU SINESS MODEL OF LUCAS TVS AND THE ASSESSEE-COMPANY. 10. REFERRING TO THE ORDER OF THE DISPUTE RESOLUTIO N PANEL, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE TRANSFER 9 I.T.A. NO.878/MDS/14 PRICING OFFICER APPLIED THE FILTER WITH A THRESHOLD LEVEL HAVING RELATED FOR TRANSACTIONS UPTO 25%. THE NUMBER OF COMPARABL E COMPANIES OPERATING IN SIMILAR SEGMENTS ARE SMALL IN NUMBER. WHEN THE LUCAS TVS HAS TRANSACTIONS WITH RELATED PARTIES UPTO 25% OF THEIR SALES, THE SAME CANNOT BE TAKEN AS COMPARABLE AT ALL. 11. ACCORDING TO THE LD. REPRESENTATIVE FOR THE ASS ESSEE, THE ASSESSEE-COMPANY CHOSE AUTO ELECTRICAL FILTER AS TH E FIRST CRITERIA WHICH IS THE MOST NEAREST INDICATOR OF THE ASSESSEE S BUSINESS MODEL AND FUNCTION. THE LD. REPRESENTATIVE FURTHER CLARIFIED THAT SELECTING FUNCTIONALLY SIMILAR COMPANIES IS THE FIR ST STEP FOR MAKING COMPARISON TO DETERMINE THE ARM'S LENGTH PRICE. RE FERRING TO THE THREE COMPARABLES REJECTED BY THE TPO ON THE GROUND THAT THEY ARE LOSS MAKING COMPANIES PERSISTENTLY YEAR AFTER YEAR, THE LD. REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS ALSO EQUALLY A LOSS MAKING COMPANY PERSISTENTLY, THEREFORE, THE REASONI NG OF THE TRANSFER PRICING OFFICER AND THE DISPUTE RESOLUTION PANEL FOR REJECTING THE COMPARABLES SELECTED BY THE ASSESSEE IS NOT JUSTIFIED. THEREFORE, THE ARM'S LENGTH PRICE DETERMINED BY THE ASSESSING OFFICER CONSEQUENT TO THE DIRECTION OF THE DRP HAS TO BE IGNORED. 10 I.T.A. NO.878/MDS/14 12. ON THE CONTRARY, SHRI ARUN C. BHARATH, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE CLAIMS THAT THE THREE COMPARABLES SELECTED BY IT ARE MAKING SIMILAR FUNCT IONS AS THAT OF THE ASSESSEE. ACCORDING TO THE LD. D.R., THE FUNCT IONS OF THE THREE COMPARABLES SELECTED BY THE ASSESSEE ARE TOTALLY DI FFERENT, THEREFORE, IT CANNOT BE COMPARED. REFERRING TO THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE IS ALSO MAKING PERSISTEN T LOSS AS THAT OF THE COMPARABLES SELECTED BY THE ASSESSEE, THE LD. D .R. POINTED OUT THAT THE ASSESSEE IS NOT PERSISTENTLY LOSS MAKING C OMPANY EXCEPT IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS MAD E A POSITIVE PROFIT IN THE EARLIER FOUR YEARS. THEREFORE, ACCOR DING TO THE LD. D.R., INCURRING LOSS YEAR AFTER YEAR IS NOT THE TREND OF THE BUSINESS SEGMENT BUT IT HAPPENS DUE TO VARIOUS UNIQUE REASON S. THEREFORE, THE TRANSFER PRICING OFFICER HAS RIGHTLY REJECTED T HE COMPARABLES SELECTED BY THE ASSESSEE. 13. REFERRING TO THE RELATED PARTY TRANSACTION UPTO 25% BY LUCAS TVS, THE LD. D.R. SUBMITTED THAT THE RELATED PARTY TRANSACTION UPTO 25% IS PERMISSIBLE AT THRESHOLD LEVEL FOR TP STUDY. ACCORDING TO THE LD. D.R., COMPARABLES BEING VERY LIMITED, RELATED P ARTY TRANSACTION WOULD ALSO BE PERMISSIBLE UPTO THE LEVEL OF 25%. R EFERRING TO THE 11 I.T.A. NO.878/MDS/14 INTERNAL COMPARABLES, THE LD. D.R. SUBMITTED THAT T HE AVAILABLE INTERNAL COMPARABLE CANNOT BE CONSIDERED FOR DETERM INING THE ARM'S LENGTH PRICE. ACCORDING TO THE LD. D.R., ONLY EXTE RNAL COMPARABLE HAS TO BE CONSIDERED FOR MAKING ADJUSTMENT WHILE DE TERMINING THE ARM'S LENGTH PRICE OF THE TRANSACTION OF THE ASSESS EE. THEREFORE, ACCORDING TO THE LD. D.R., THE DRP HAS RIGHTLY CONF IRMED THE ORDER OF THE TRANSFER PRICING OFFICER. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE IS MANUFACTURING DC MICRO MOTORS AND SUB-A SSEMBLIES FOR DC MOTORS. THE ASSESSEE SELECTED THREE COMPARA BLES, NAMELY, SIBAR AUTO PARTS LTD., K.S. DIESELS LTD. AND SUYAAN TRANSMISSIONS LTD. FROM THE PRODUCT DETAILS, IT APPEARS SIBAR AU TO PARTS LTD. IS MANUFACTURING ALUMINIUM HARD CHROME PLATED CYLINDER KITS, CYLINDER BLOCKS, BLIND-END CYLINDER BLOCKS, AIR COOLER CYLIN DER HEADS AND WATER COOLED CYLINDERS. THIS COMPANY MAY BE MANUFA CTURING SUB- ASSEMBLIES FOR DC MOTORS. SIMILARLY, K.S. DIESELS LTD. IS MANUFACTURING SPARES FOR FUEL PUMPS, PARTS FOR FUEL INJECTION EQUIPMENT FOR DIESEL ENGINES, NOZZLES, ELEMENTS, DE LIVERY VALVES, INJECTOR COMPLETE AND SINGLE CYLINDER PUMP, AND SUY AAN 12 I.T.A. NO.878/MDS/14 TRANSMISSIONS LTD. IS MANUFACTURING CRANK SHAFTS. THESE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE MAY B E SUB- ASSEMBLING FOR DC MOTORS. ADMITTEDLY, THE COMPARAB LE COMPANIES SELECTED BY THE ASSESSEE-COMPANY ARE SUFFERING PERS ISTENT LOSS IN THEIR BUSINESS ACTIVITIES. THE ASSESSEE-COMPANY IS ALSO MAKING LOSSES. HOWEVER, IT IS NOT A PERSISTENT LOSS MAKIN G COMPANY AS THAT OF COMPARABLES. EXCEPT FOR THE YEAR UNDER CONSIDER ATION, THE ASSESSEE-COMPANY IS ALSO MAKING POSITIVE PROFIT. T HEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSE SSEE-COMPANY IS NOT A PERSISTENT LOSS MAKING COMPANY. THE LOSS SUF FERED BY THE ASSESSEE DURING ONE YEAR MIGHT NOT BE COMPARED WITH THAT OF THE COMPARABLE COMPANIES. SINCE THE COMPARABLES SELECT ED BY THE ASSESSEE-COMPANY ARE ADMITTEDLY PERSISTENT LOSS MAK ING COMPANIES, THE DRP HAS RIGHTLY REJECTED THE COMPARA BLES SELECTED BY THE ASSESSEE. 15. NOW COMING TO THE INTERNAL COMPARABLES, THE DRP REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ON LY EXTERNAL COMPARABLE HAS TO BE CONSIDERED. IF ONLY EXTERNAL COMPARABLE HAS TO BE CONSIDERED, THEN LUCAS TVS HAS RELATED PARTY TRANSACTION TO THE EXTENT OF 25%. THEREFORE, THE LUCAS TVS SELECT ED BY THE 13 I.T.A. NO.878/MDS/14 TRANSFER PRICING OFFICER ALSO CANNOT BE A COMPARABL E CASE WHILE DETERMINING THE ARM'S LENGTH PRICE IN THE CASE OF T HE ASSESSEE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHE N THE ASSESSEE HAS RELATED PARTY TRANSACTION AND NON-RELATED PARTY TRANSACTION, IN THE ABSENCE OF SIMILARLY PLACED COMPANIES, HAVING S IMILAR FUNCTIONS, SIMILAR ASSETS EMPLOYED AND SIMILAR RISK TAKING COM PANY, CONSIDERING THE TRANSACTION OF THE ASSESSEE WITH NO N-RELATED PARTY CAN BE THE BEST METHOD TO DETERMINE THE ARM'S LENGT H PRICE. IN FACT, LUCAS TVS IS MANUFACTURING COMPONENTS FOR EVE RY VEHICLE LIKE CARS, TWO WHEELERS, ETC., WHEREAS, THE ASSESSEE-COM PANY IS MANUFACTURING DC MICRO MOTORS AND SUB-ASSEMBLIES ON LY FOR THE CARS. THEREFORE, THERE IS A VAST FUNCTIONAL DIFFER ENCE BETWEEN THE MANUFACTURING ACTIVITY OF THE ASSESSEE AND LUCAS TV S. LUCAS TVS HAS NO SEGMENT WISE DETAILS FOR MANUFACTURING COMPO NENTS FOR CARS, TWO WHEELERS, ETC. THE TPO OR DRP HAS NOT TA KEN ANY EFFORT FOR TAKING THE SEGMENT WISE DETAILS WHILE PREFERRIN G LUCAS TVS FOR MAKING ADJUSTMENT IN THE ASSESSEES CASE. TAKING T HE OVERALL PROFIT OF LUCAS TVS IN THE TVS GROUP OF COMPANIES MANUFACT URING AUTOMOBILE PRODUCTS, THIS TRIBUNAL IS OF THE CONSID ERED OPINION THAT LUCAS TVS CANNOT BE A COMPARABLE CASE AT ALL. THER EFORE, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, COMPARIN G THE 14 I.T.A. NO.878/MDS/14 TRANSACTION OF THE ASSESSEE WITH NON-ASSOCIATE ENTE RPRISE WOULD GIVE THE CORRECT PICTURE OF THE TRANSACTION. THERE FORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ARM'S LENGTH PRICE HAS TO BE DETERMINED ON THE BASIS OF THE TRANSACTION MADE BY THE ASSESSEE WITH NON-ASSOCIATE ENTERPRISE. ACCORDINGLY, WE ARE UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. 16. IN VIEW OF THE ABOVE DISCUSSION, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO COMPARE THE TRANSACTION OF THE ASSESSEE WITH ASSOCI ATE ENTERPRISE BY TAKING THE TRANSACTION OF THE ASSESSEE WITH NON- ASSOCIATE ENTERPRISE. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON 24 TH MARCH, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 24 TH MARCH, 2016. KRI. 15 I.T.A. NO.878/MDS/14 / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. TPO II, CHENNAI-34 4. ITO (HQRS), SECRETARY, DRP, CHENNAI 5. 79 -2 /DR 6. ( : /GF.