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Tecumseh Products India v/s Acit, Circle-2(2), Hyd


Company & Directors' Information:- TECUMSEH PRODUCTS INDIA PRIVATE LIMITED [Active] CIN = U31109TG1997PTC035316

Company & Directors' Information:- TECUMSEH PRODUCTS INDIA LIMITED [Not available for efiling] CIN = U99999DL1997PLC084760

Company & Directors' Information:- TECUMSEH PRODUCTS INDIA LTD. [Not available for efiling] CIN = U29306DL1996PLC075807

Company & Directors' Information:- P P PRODUCTS PVT LTD [Active] CIN = U32305WB1991PTC051091

Company & Directors' Information:- K B PRODUCTS PRIVATE LIMITED [Active] CIN = U51909MH2007PTC169627

Company & Directors' Information:- M L B PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1990PTC040990

Company & Directors' Information:- M M PRODUCTS LIMITED [Strike Off] CIN = U28994DL1992PLC050955

Company & Directors' Information:- M P K PRODUCTS PVT LTD [Active] CIN = U26919AS1994PTC004183

Company & Directors' Information:- N R PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U51109AS1998PTC005561

Company & Directors' Information:- K. S. A. PRODUCTS PRIVATE LIMITED [Active] CIN = U51220PB2014PTC039023

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- J S R PRODUCTS PRIVATE LIMITED [Active] CIN = U31908DL2007PTC170841

Company & Directors' Information:- C F C PRODUCTS PRIVATE LIMITED [Active] CIN = U28129DL1998PTC095531

Company & Directors' Information:- M S PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U74899DL1993PTC055125

Company & Directors' Information:- B R PRODUCTS PRIVATE LIMITED [Active] CIN = U31909DL1999PTC100727

Company & Directors' Information:- S P B PRODUCTS LIMITED [Active] CIN = U51909DL1996PLC082631

Company & Directors' Information:- G K D PRODUCTS PRIVATE LIMITED [Active] CIN = U15431WB1998PTC086840

Company & Directors' Information:- P D PRODUCTS PRIVATE LIMITED [Active] CIN = U23201DL2000PTC108462

Company & Directors' Information:- S K M PRODUCTS PRIVATE LIMITED [Active] CIN = U18101DL1998PTC093415

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- G M PRODUCTS PRIVATE LIMITED [Active] CIN = U74899DL1991PTC044687

Company & Directors' Information:- W S T Q PRODUCTS PRIVATE LIMITED [Active] CIN = U31300DL1999PTC102655

Company & Directors' Information:- J M K PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U24246OR2005PTC008446

Company & Directors' Information:- G S T PRODUCTS (INDIA) PRIVATE LIMITED [Strike Off] CIN = U31909TN2006PTC059575

Company & Directors' Information:- U B PRODUCTS PRIVATE LIMITED [Active] CIN = U51224DL2002PTC116457

Company & Directors' Information:- S D H PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U55204KA2006PTC040734

Company & Directors' Information:- V M PRODUCTS PRIVATE LIMITED [Active] CIN = U24100DL2014PTC266679

Company & Directors' Information:- E C A PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U27209TN1987PTC014022

Company & Directors' Information:- A R K PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U24231UP1978PTC004606

Company & Directors' Information:- S. M. PRODUCTS PRIVATE LIMITED [Strike Off] CIN = U17299DL1966PTC004634

Company & Directors' Information:- PRODUCTS (INDIA) LTD [Strike Off] CIN = U31901WB1961PLC024991

Company & Directors' Information:- M PRODUCTS & CO PVT LTD [Strike Off] CIN = U51909WB1956PTC023215

    I.T.A. No. 494/HYD of 2015

    Decided On, 16 January 2019

    At, Income Tax Appellate Tribunal Hyderabad

    By, THE HONOURABLE MRS. P. MADHAVI DEVI
    By, JUDICIAL MEMBER & THE HONOURABLE MR. S. RIFAUR RAHMAN
    By, ACCOUNTANT MEMBER

    For the Appellant: Abhiroop Bhargav, AR. For the Respondent: C. Srinivas Reddy, DR.



Judgment Text

P. Madhavi Devi, J.M:

1. This is an appeal by the assessee for the AY. 2010-11 against the assessment order u/s. 143(3) r.w.s. 92CA(4) r.w.s. 144C(13) of the Income Tax Act [Act], dated 27-02-2015. Assessee has raised the following revised grounds of appeal:

"1. On the facts and in the circumstances of the case and in law, the Ld. Transfer Pricing Officer (Ld. TPO), while giving effect to the directions of the Ld. DRP, erred in making a total adjustment of Rs. 7,98,50,850 to the Appellant's international transactions of sale of AK Kits and components, purchase of components, tools and accessories, purchase of compressors and sale of compressors.

International transaction of Sale of AK Kits and Components:

2. On the facts and in the circumstances of the case and in law, the Ld. TPO erred in making an adjustment of Rs. 2,72,53,775 to the Appellants' international transaction of Sale of AK Kits and components to its AE.

3. While benchmarking the aforesaid international transaction, the Ld. TPO erred in including certain companies which are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed.

International transaction of purchase of components tools and accessories, purchase of compressors and sale of compressors

4. On the facts and in the circumstances of the case and in law, the Ld. TPO erred in making an adjustment of Rs. 5,25,97,075 to the Appellants' international transaction of purchase of components tools and accessories, purchase of compressors and sale of compressors.

5. While benchmarking the aforesaid international transactions, the Ld. TPO erred in rejecting the Comparable Uncontrolled Price ('CUP') as the most appropriate method, thereby aggregating all the international transactions under consideration and applying Transactional Net Margin Method ('TNMM').

6. Without prejudice to the ground no. 5, on the facts and in the circumstances of the case and in law, the Ld. TPO erred in applying an incorrect profit level indicator ('PU') of Operating profit/Operating cost ('OP/OC') while benchmarking the purchase transactions.

7. Without prejudice to the ground no. 5, on the facts and in the circumstances of the case and in law, the Ld. TPO erred in applying the same set of comparable companies for the purpose of benchmarking the international transactions of purchase of tools and accessories and purchase and sale of compressors as used for benchmarking the international transaction of sale of AK Kits and Components".

2. Brief facts of the case are that assessee- company, deriving income from Manufacturing and Sale of Air- Conditioner and Refrigerator Compressors, filed its return of income for the AY. 2010-11, declaring total loss of Rs. 11,67,68,784/-. During the assessment proceedings u/s.

143(3) of the Act, Assessing Officer observed that assessee has entered into international transactions with its Associated Enterprise [AE] and determination of the Arm's Length Price [ALP] of the international transaction was referred to the Transfer Pricing Officer [TPO] u/s. 92CA of the Act. The TPO observed that the assessee-company manufactures compressors for air-conditioner equipments and exports compressors sub-assembly and components [pump kits and crankshafts etc.,] to AE. He also observed that certain parts and components required to manufacture compressors are imported from AE. He took into consideration the fact that the assessee has two manufacturing facilities at Hyderabad and Ballabgarh (Haryana). Hyderabad facility manufactures compressors for air-conditioner equipments, whereas Ballabgarh (Haryana) facility makes compressors for refrigeration equipments. He considered that assessee has adopted Transactional Net Margin Method [TNMM] as the most appropriate method for benchmarking the manufacturing activity, whereas for the other transaction of sale, it has adopted Comparable Un-controlled Price [CUP] method. The TPO, however, aggregated both the transactions and adopted TNMM as the most appropriate method. Thereafter, he proceeded to consider the comparables selected by the assessee, which are both into manufacturing as well as sale of components. Observing that various shortcomings are there in the comparables selected by the assessee, he rejected the said comparables and proposed 8 (eight) companies as comparables, whose average margin was 26.56%. Assessee submitted its objections to the comparables selected by the TPO. However, TPO rejected the assessee's objections and adopted 17 (seventeen) companies as comparables, the Arithmetic Mean of the PLI [OP/OC] of the comparables being 21.88%. Thus, he proposed an adjustment of Rs. 5,80,01,717/-. Accordingly, draft assessment order was proposed by the Assessing Officer, against which assessee preferred its objections to the Dispute Resolution Panel [DRP]. One of the objections taken by assessee to the DRP was that the TPO was not correct in ignoring that there are two different activities undertaken by the assessee and that assessee is maintaining separate books of account for the EOU unit and in not considering the segmental results reported in the financial statements. It was contended that the TPO has erroneously computed the operating cost on a proportionate basis, which is incorrect. The DRP by following the decision of the Co-ordinate Bench of the ITAT in assessee's own case for the AY. 2007-08 in ITA No. 2228/H/2011, dt. 28-05-2014, directed the Assessing Officer to examine the correctness of the claim of assessee and if found to be correct, then to consider the segmental financial statements and arrive at the operating cost accordingly. It was also directed that certain common expenses which are directly attributable to EOU unit like Director's salary etc., may be estimated at a percentage to be allocated for the purpose of calculation.

3. Ld. Counsel for the assessee submitted that inspite of such a direction, the Assessing Officer has not followed the directions of the DRP and has incorrectly computed the OP/OC. However, at the time of hearing, a copy of the order giving effect to DRP, dt. 28-02-2015 was filed before us, wherein the TPO has determined the Arm's Length Price [ALP] on purchase of components, tools, accessories and spares separately from sale of compressors. However, Ld. Counsel submitted that even though the assessee is involved in two different activities of manufacture and sale, the TPO has taken the same set of comparables for both the transactions and has arrived at the adjustm

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ent, which is not correct. 4. We have gone through the orders of the lower authorities. We find that the assessee is into manufacture of compressors and also sale of compressors and both the activities are different and therefore, they require different set of comparables. Therefore, we deem it fit and proper to remit the issue to the file of AO/TPO for fresh analysis and fresh determination of ALP in accordance with law. Assessee shall be allowed to raise any contentions on account of comparables and also the method to be adopted for determination of the ALP. Grounds are thus considered as allowed for statistical purposes. 5. In the result, the appeal of assessee is allowed for statistical purposes.
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