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Income Tax Appellate Tribunal - Kolkata

Dcit, Cir-12(2), Kolkata, Kolkata vs M/S Schenck Process India Ltd., Kolkata on 18 May, 2018

                                                                       I . T. A . N o 1 3 0 / KO L / 2 0 1 6
                                                                   Assessment year: 2011-2012
                                                                                       &
                                                                       C . O. N o. 1 8 / KO L / 2 0 1 6
                                                                  ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 )
                                                                  A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2
                                                                                               Page 1 of 16

                  IN THE INCOME TAX APPELLATE TRIBUNAL,
                       KOLKATA 'C' BENCH, KOLKATA

                 Before Shri P.M. Jagtap, Accountant Member
                    and Shri A.T. Varkey, Judicial Member

                              I.T .A. No. 130/KOL/2016
                             Assessment Year: 2011-2012

Deputy Commissioner of Income Tax,........ .............................Appellant
Circle-12(2 ), Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069

       -Vs.-

M/s. Sc henck Process India Limited,........ ..............................Respondent
EN-26, Amrit Tower, 6 t h Floor,
Sector-V, Salt Lake C ity,
Kolkata-700 091
[PAN: AAECS 4728 C]
                                             &

                              C.O. No. 18/KOL/2016
                      (arising out of I.T.A. No. 130/KOL/2016)
                           Assessment Year: 2011-2012

M/s. Sc henck Process India Limited,........ ..............................Cross Objec tor
EN-26, Amrit Tower, 6 t h Floor,
Sector-V, Salt Lake C ity,
Kolkata-700 091
[PAN: AAECS 4728 C]
      -Vs.-

Deputy Commissioner of Income Tax,........ .............................Respondent
Circle-12(2 ), Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069

Appearances by:
Shri P.K. Srihari, C IT, D.R. for the Depart ment
Shri Prasun Kumar Maiti, A.R., for the assessee

Date of concluding th e hearing : March 08, 2018
Date of pronouncing the order : May 18, 2018
                                                          I . T. A . N o 1 3 0 / KO L / 2 0 1 6
                                                     Assessment year: 2011-2012
                                                                         &
                                                         C . O. N o. 1 8 / KO L / 2 0 1 6
                                                    ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 )
                                                    A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2
                                                                                 Page 2 of 16



                                O R D E R

Per Shri P.M. Jagtap, A.M. :-

This appeal filed by the Revenue and Cross Objection filed by the assessee are directed against the order of Dispute Resolution Panel-2, New Delhi dated 12.10.2015 passed under section 144C(5) of the Income Tax Act, 1961 and the solitary common issue involved therein relates to the Transfer Pricing adjustment.

2. The assessee in the present case is a Company, which is engaged in the manufacture of a wide range of equipments used for Dynamic Weighing, Feeding and Controlling flow of sold materials. The return of income for the year under consideration was filed by it on 28.11.2011 declaring total income of Rs.15,49,31,766/-. During the year under consideration, the assessee-company had entered into the following international transactions with its Associated Enterprises:-

Nature of transaction Paid (Rs.) Received (Rs.) Sale of components 11,456,350 Sale of services 1,52,685 Purchase of raw material & 128,604,847 components Trademark/license fee 15,572,928 Reimbursement of expenses 466,634 Sale of components 1,009,852 Sale of services 113,308 Management fee for 21,541,343 assistance Recovery of expenses 2,645,239 Purchase of raw material & 86,848,553 components Purchases of services 1294,425 Reimbursement of expenses 506,144 I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 3 of 16 Purchase of raw material & 2,151,542 components Recovery of expenses 160,493 Recovery of expenses 188,348 Management fee for 1,029,460 assistance Purchase of raw material & 88,344,217 components Purchases of services 14,935,325 Purchase of raw material & 24,923,893 components Purchase of raw material & 13,018,379 components In order to determine the arm's length price of the aforesaid international transactions entered into by the assessee with its associated Enterprises, a reference was made by the Assessing Officer to the Transfer Pricing Officer (in short TPO) under section 92CA of the Act. In the Transfer Pricing Study Report furnished by the assessee, TNMM was adopted as the most appropriate method and operating profit to operating revenue (OP/Sales) was taken as the Profit Level Indicator (PLI). In the said TPO Study Report, the assessee-company was taken as the tested party and a set of five comparables was selected having an average (OP/Sales) of 6.19%. Since the OP/Sales of the assessee-company as worked at 8.41% was higher than the average OP/Sales of the five comparables, the price charged to the associated Enterprises in the international transactions was claimed by the assessee-company to be at arm's length.

3. The comparability analysis made in the TP Study Report submitted by the assessee was examined by the TPO and on such examination, he found that the assessee-company had not considered current year data of any of the comparable companies and the data for the earlier two financial years, i.e. F.Y. 2008-09 and 2009-10 was considered. Keeping in I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 4 of 16 view the said defect as well as the other defects pointed out by him, the TPO rejected the Transfer Pricing Study Report furnished by the assessee by regarding it as not reliable. He then proceeded to do the comparability analysis of his own and by applying the various filters and criteria, selected 35 entities as comparables, which incidentally included two of the five entities selected as comparables in the T.P. Study Report furnished by the assessee. By relying on the various quantitative and qualitative criteria, the assessee objected to the inclusion of many entities selected by the TPO in the final set of comparables. After taking into consideration the submissions made by the assessee in this regard, the TPO found the objections raised by the assesese for inclusion of some of the entities as comparables to be sustainable and accordingly selected the following 16 entities in the final list of comparables:-

Sr. No. Name of the Company OP/Sales
1. Action Construction Equipment Limited 8.26%
2. Andhra Pradesh Heavy Machinery & 15.25% Engg. Ltd.
3. Avery India Ltd. 13.04%
4. Bharat Bijlee Ltd. 9.91%
5. CTR Manufacturing Industries Ltd. 19.35%
6. Elmco Elcon (India) Limited 13.04%
7. GMM Pfaudler Ltd. 10.71%
8. Greaves Cotton Ltd. 15.25%
9. International Combustion (India) Ltd. 15.25%
10. International Conveyors Ltd. 10.71%
11. L&T Cutting Tools Ltd. 9.91%
12. Lincoln Helios (India) Ltd. 27.54%
13. Mazda Ltd. 13.79%
14. Otis Elevator Company (I) Ltd. 13.79%
15. TIL Ltd. 15.25% I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 5 of 16
16. UT Ltd. 9.09% 13.76%

4. By applying average OP/Sales of the 16 entities selected by him as final comparables, the TPO determined the arm's length Profit on the total sales of the assessee at Rs.19,42,08,820/- as against the profit of Rs.11,86,89,489/- shown by the assessee thereby making a difference of Rs.7,59,19,331/-. Since the value of international transactions of the assessee in total sales were 26.42%, the amount of transfer pricing adjustment on proportionate basis was worked out by the Assessing Officer at Rs.1,99,51,702/-. Accordingly, in the draft assessment order, addition of Rs.1,99,51,702/- was proposed by the Assessing Officer on account of transfer pricing adjustment.

5. The addition on account of transfer pricing adjustment as proposed by the Assessing Officer in the draft assessment order was challenged b y the assessee by filing objections before the DRP. One of the objections raised by the assessee before the DRP was relating to the exclusion by the TPO of three entities selected as comparables in the T.P. Study Report from the final list of comparables. The DRP, however, did not find this objection of the assessee to be sustainable and overruled the same for the following reasons given in the tabular form:-

               Comparable     TPO               Assessee                 DRP
1.             Josts          Though   the      The company              Exclusion is
               Engineering    company    is     manufactures             valid in view
               Co. Ltd.       into              material                 of
                              manufacture       handling                 diversified
                              of   material     equipment                activities.
                              handling          which        is          GMM
                              equipment it      similar to the           Pfaudler has
                              also              activities of            also     been
                              manufactures      assessee. The            excluded on
                                                          I . T. A . N o 1 3 0 / KO L / 2 0 1 6
                                                     Assessment year: 2011-2012
                                                                         &
                                                         C . O. N o. 1 8 / KO L / 2 0 1 6
                                                    ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 )
                                                    A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2
                                                                                 Page 6 of 16


                           other              maximum                 identical
                           equipments,        revenue                 issue.     For
                           components,        comes from              consistency
                           accessories        material                this   is    a
                           and    spares.     handling                valid
                           Hence,      the    equipment.              exclusion.
                           company       is   Hence,    the           GMM
                           rejected as a      company has             Pfaudler Ltd.
                           comparable         been
                           for      being     accepted as a
                           into               comparable.
                           diversified
                           activities.
2.            Automag      TPO         has    The company             The
              India   Pvt. rejected the       thus                    exclusion is
              Ltd.         company due        manufactures            valid as the
                           to        non-     comparable              information
                           availability       products and            not
                           of      annual     has     been            available-
                           report             accepted.               the assessee
                                                                      has also not
                                                                      furnished
                                                                      the financial
                                                                      data.
3.            Wevin     Pvt. TPO        has   The company             The
              Ltd.           rejected the     manufactures            exclusion is
                             company due      comparable              valid as the
                             to        non-   products                information
                             availability     being chain             not
                             of      annual   and      non-           available-
                             report.          chain                   the assessee
                                              conveyors               has also not
                                              and has been            furnished
                                              accepted as a           the financial
                                              comparable.             data.

6. The assessee-company also raised objection for the inclusion of atleast 11 entities by the TPO in the list of comparables. In this regard, the DRP found merit in the stand of the assessee in so far as six entities selected by the TPO as comparables were concerned and directing the exclusion of the same from the final list of comparables, the remaining I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 7 of 16 five entities were retained by the DRP in the final list of comparables for the following reasons given in the tabular form:-

     Comparable        TPO             Assessee                     DRP
1.   Bharat    Bijlee This         is As    seen    above           While
     Ltd.             functionally    Electric     Motors           selecting
                      comparable.     and Transformers              comparables,
                                      comprise      about           the FAR has to
                                      92% of the total              be
                                      sales     of    the           considered.
                                      company.        The           Plain
                                      company                       functional
                                      manufactures                  comparability
                                      different products            cannot ignore
                                      and hence, should             the
                                      be rejected.                  product/item
                                                                    as         the
                                                                    functional
                                                                    comparability
                                                                    is    impacted
                                                                    by the nature
                                                                    of     product.
                                                                    The
                                                                    comparable is
                                                                    to          be
                                                                    excluded.
2.   CTR               This         is It is clear that             While
     Manufacturing     functionally    Engineering    and           selecting
     Industries Ltd.   comparable.     Electronic                   comparables,
                                       products     being           the FAR has to
                                       tap      changers,           be
                                       capacitors,                  considered.
                                       railway                      Plain
                                       equipments,    fire          functional
                                       systems,     wind            comparability
                                       turbine                      cannot ignore
                                       generation                   the
                                       comprise the total           product/item
                                       sales    of    the           as         the
                                       company.       The           functional
                                       company                      comparability
                                       manufactures                 is    impacted
                                       different products           by the nature
                                       and hence, has               of     product.
                                       been rejected.               The
                                                       I . T. A . N o 1 3 0 / KO L / 2 0 1 6
                                                  Assessment year: 2011-2012
                                                                      &
                                                      C . O. N o. 1 8 / KO L / 2 0 1 6
                                                 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 )
                                                 A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2
                                                                              Page 8 of 16


                                                                 comparable is
                                                                 to           be
                                                                 excluded.
3.   Emco     Elecon This         is That the company            This company
     (India) Limited functionally    manufactures                manufactures
                     comparable.     diverse products            loader
                                     and hence is not            Machines, etc.
                                     comparable     and          these come in
                                     has been rejected.          closure
                                                                 comparability
                                                                 and would fall
                                                                 in      similar
                                                                 FAR.       This
                                                                 comparable
                                                                 should       be
                                                                 included.
4.   GMM    Pfaudler This         is Above         the           While
     Ltd.            functionally    company's major             selecting
                     comparable.     segments are:               comparables,
                                     Chemical Process            the FAR has to
                                     Equipment                   be
                                     Mixing System               considered.
                                     Filtration      &           Plain
                                     Separation                  functional
                                                                 comparability
                                                                 cannot ignore
                                                                 the
                                                                 product/item
                                                                 as          the
                                                                 functional
                                                                 comparability
                                                                 is    impacted
                                                                 by the nature
                                                                 of     product.
                                                                 The
                                                                 comparable is
                                                                 to           be
                                                                 excluded.
5.   Greaves Cotton This         is The      company             While
     ltd.           functionally    manufactures                 selecting
                    comparable.     diverse products             comparbles,
                                    being        High            the FAR has to
                                    Pressure Pumps,              be
                                    Gear Boxes, Pump             considered.
                                    sets etc. Hence              Plain
                                                           I . T. A . N o 1 3 0 / KO L / 2 0 1 6
                                                      Assessment year: 2011-2012
                                                                          &
                                                          C . O. N o. 1 8 / KO L / 2 0 1 6
                                                     ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 )
                                                     A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2
                                                                                  Page 9 of 16


                                      the company has functional
                                      been rejected.         comparability
                                                             cannot ignore
                                                             the
                                                             product/item
                                                             as           the
                                                             functional
                                                             comparability
                                                             is    impacted
                                                             by the nature
                                                             of      product.
                                                             The
                                                             comparable is
                                                             to            be
                                                             excluded.
6.   L&T      Cutting This         is Moreover      it    is This falls in
     Tools Ltd.       functionally    clear    that     the similar      FAR
                      comparable.     company                analysis and
                                      manufactures           the functional
                                      unrelated              comparability
                                      products         like is closer. This
                                      cutting        tools. is     a    valid
                                      Hence,            the comparable.
                                      company has been The               TPO
                                      rejected.              should share
                                                             the financials
                                                             with         the
                                                             assessee.
7.   Lincoln Helios This           is Thus it is evident While
     (India) Ltd.     functionally    that the company selecting
                      comparable.     is    involved     in comparables,
                                      manufacture,           the FAR has to
                                      purchase and sale be
                                      of      centralized considered.
                                      lubrication            Plain
                                      systems and parts functional

thereof. Hence, it comparability is not functionally cannot ignore comparable to the the assessee and is product/item thereby rejected. as the functional comparability is impacted by the nature I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 10 of 16 of product.

                                                                    The
                                                                    comparable is
                                                                    to           be
                                                                    excluded.
8.    Mazda Ltd.       This         is The company is               While
                       functionally    involved          in         selecting
                       comparable.     manufacture       of         comparables,
                                       engineering goods            the FAR has to
                                       like       Vacuum            be
                                       Products,                    considered.
                                       Evaporators,                 Plain
                                       Pollution Control            functional
                                       Equipments      etc.         comparability
                                       and is in the                cannot ignore
                                       business of food             the
                                       items. As it is not          product/item
                                       functionally                 as          the
                                       comparable to the            functional
                                       assessee.                    comparability
                                                                    is    impacted
                                                                    by the nature
                                                                    of     product.
                                                                    The
                                                                    comparable is
                                                                    to           be
                                                                    excluded.
9.    Otis   Elevator This         is The company is                Being        an
      Company     (I) functionally    involved         in           identical
      Ltd.            comparable.     manufacture      of           product
                                      elevators      and            segment and
                                      escalators which              closer
                                      is not the activity           functional
                                      in    which     the           comparability,
                                      tested party is               this     would
                                      involved.   Hence,            meet the FAR
                                      the company is                tests. It is a
                                      rejected as not               valid
                                      being functionally            comparable.
                                      comparable.
10.   TIL Ltd.        This         is As seen in the                Being                    an
                      functionally    screenshot above              identical
                      comparable.     the company is                product
                                      into    diversified           segment                and
                                      business                      closer
                                                           I . T. A . N o 1 3 0 / KO L / 2 0 1 6
                                                      Assessment year: 2011-2012
                                                                          &
                                                          C . O. N o. 1 8 / KO L / 2 0 1 6
                                                     ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 )
                                                     A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2
                                                                                 Page 11 of 16


                                       segments.        The          functional
                                       learned TPO had               comparability,
                                       himself     rejected          this     would
                                       comparables       for         meet the FAR
                                       being           into          tests. It is a
                                       diversified                   valid
                                       business.                     comparable.
                                       Moreover         the
                                       company
                                       manufactures
                                       lifting, Port and
                                       road        building
                                       solutions.
11.   UT Ltd.                          The        company            Being       an
                                       manufactures                  identical
                                       Hydraulic                     product
                                       Engineering                   segment and
                                       products such as              closer
                                       Tipping        Gars,          functional
                                       Hydraulic                     comparability,
                                       Cylinders etc. and            this     would
                                       hence has been                meet the FAR
                                       rejected.                     tests. It is a
                                                                     valid
                                                                     comparable.



7. In the objections filed before the DRP, working capital adjustment was also claimed by the assessee and although a detailed submission was made by the assessee on this issue, the DRP found that there was a failure on the part of the assessee to explain as to why and how the working capital adjustment was justified in its own case and how the variation in working capital profile was impacting ALP computation. In the absence of the same, the DRP did not allow working capital adjustment as sought by the assessee. As regards the other objection raised by the assessee regarding the mistake on the part of the TPO in computing the correct PLI, the DRP directed the A.O./TPO to verify the same.

I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 12 of 16

8. As per the direction of the DRP, the final set of comparables with their PLI (OP/TC) was revised by the TOP as under:-

Sl. No. Name of the comparable OP/TC
1. Action Construction Equipment Ltd. 8.44%
2. Andhra Pradesh Heavy Machinery & 17.27% Engg. Ltd.
3. Avery India Ltd. 13.77%
4. Emco Elecon India Ltd. 13.04%
5. L&T Cutting Tools Ltd. 9.91%
6. Otis Elevator Company (I) Ltd. 16.55%
7. TIL Ltd. 23.82%
8. UT Ltd. (-)7.86%
9. International Combustion (India) Ltd. 13.89%
10. International Conveyors Ltd. 6.31% Simple Arithmetic mean 11.51%

9. The TPO also held that purchases of services of goods were required to be bench-marked taking OP/OR as PLI, while sale of goods and services were to be bench-marked by taking OP/TC as PLI. Since OP/TC was computed at 11.51% by taking the simple arithmetic mean, he worked out the arm's length price OP/OR at 10.32%. By applying the arm's length Price of 10.32% on the total cost, he determined the arm's length price of the international transactions of the assessee-company with its associated Enterprises involving purchase of goods and services at Rs.38,79,20,153/- as against the corresponding price of Rs.39,61,63,371/- charged by the assessee and since the difference between them at 2.08% was within permissible limit of 5%, he held that there was no transfer pricing adjustment warranted. Similarly, by applying the arm's length PLI of 11.51%, he determined the arm's length price of the international transactions of the assessee-company with its associated Enterprises involving sales of goods and services at I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 13 of 16 Rs.1,29,72,294/- as against the price charged by the assessee at Rs.1,27,32,196/- and since the difference between the same at 1.88% was within the permissible limit of 5%, he held that no transfer pricing adjustment was warranted. The transfer pricing adjustment as originally worked out by the TPO at Rs.1,99,51,702/- thus was reduced to 'NIL' as a result of directions given by the DRP vide its order dated 12.10.2015 passed under section 144C(5) of the Act and being aggrieved by the same, the Revenue has preferred this appeal before the Tribunal challenging exclusion of six parties by the DRP from the final set of comparables, while the assessee has also filed Cross Objection seeking inclusion of three entities selected as comparables in the T.P. Study Report but rejected by the TPO as well as DRP. The assessee has also claimed working capital adjustment which the DRP has disallowed.

10. The ld. D.R. submitted that six entities selected by the TPO as comparables are excluded by the DRP by accepting the contention of the assessee that the products manufactured by them are not similar to the products manufactured by the tested party. He contended that the said entities are functionally similar to the assessee-company, inasmuch as the same were admittedly engaged in manufacturing. He contended that the functional comparability between the said six entities and the assessee-company thus was duly established and, therefore, the DRP was not justified in excluding the same on the basis of products dissimilarity, especially while applying TNMM method. He contended that while applying TNMM method, only the functional similarity is sufficient and it is not necessary to take further efforts to find out the product similarity. He contended that TNMM allows flexibility and tolerance in selection of comparables as the product dissimilarities get subsumed at net margin levels. He also submitted that atleast in case of two entities, namely Greaves Cotton Limited and Lincoln Helios (India) Limited, the products manufactured were broadly comparable to that of the assessee-company I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 14 of 16 and the DRP directed to exclude the same from the final list of comparables ignoring this vital aspect.

11. The ld. Counsel for the assessee, on the other hand, submitted that the assessee-company is mainly engaged in the manufacturing of material handling products and since the products manufactured by the concerned six entities excluded by the DRP were not even broadly similar to that of the assessee-company, the same were rightly excluded by the DRP. He also contended that when the comparables selected by the assessee as well as other comparables selected by the TPO himself having functional and product similarities to the assessee-company were sufficient in number for doing the comparability analysis to determine the arm's length price by applying the TNMM, there was no justification to include the entities not having product similarity to the assessee-company for determining the arm's length price even by applying the TNMM method.

12. We have considered the rival submissions and also perused the relevant material available on record. It is no doubt true that comparability analysis while applying TNMM method may be less sensitive to certain dissimilarity between the tested party and the comparables. However, as held by the Hon'ble Delhi High Court in the case of Green Solutions Pvt. Limited -vs.- CIT (I.T. Appeal No. 102/2015 dated 10.08.2015), that cannot be the consideration for diluting the standards of selecting comparable entities and the higher product and functional similarity would always go to strengthen the efficacy of the method in ascertaining the reliable arm's length price. While applying the TNMM method, functional comparability is required to be of high level while the product comparability can be of broad level. However, while considering the product comparability even at a broad level, the nature of products manufactured by the comparables, vis-a-vis that of the tested party is required to be considered and if the nature of products I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 15 of 16 manufactured by the comparables is found to be entirely different from the tested party, such comparables are liable to be excluded on the ground that there is no product comparability even at a broad level. In the present case, the assessee-company is mainly engaged in the manufacture of material handing equipments and as rightly held by the DRP, the products manufactured by the concerned six entities selected as comparables by the TPO were not comparables to that of the assessee- company even at broad level as the nature of the same itself was different. For instance, M/s. Bharat Bijli Limited was mainly engaged in the manufacturing of Electric Motors and Transformers, the nature of which is altogether different from the products manufactured by the assessee, viz. material handling equipments. Similarly, CTR Manufacturing Industries Limited was engaged in the manufacturing of engineering and electronics products being tap changers, capacitors, railway equipments, fire systems, wind turbine generation etc. while GMM Pfaudler Limited was engaged in the business of manufacturing chemical process equipments, mixing system, filtration and separation. Even in the case of Greaves Cotton Limited cited by the ld. D.R., the assessee was engaged in the manufacturing of diverse products such as high-pressure pumps, gear boxes, etc., while M/s. Lincoln Helios (India) Limited was engaged in manufacturing of lubrication systems. In our opinion, the nature of these products manufactured by the concerned six comparables thus was entirely different from the product range manufactured by the assessee and since there was no product comparability even at broad level, we find ourselves in agreement with the DRP that the same are liable to be excluded from the final list of comparables. We accordingly uphold the impugned order of the ld. DRP on this issue and dismiss the appeal filed by the Revenue.

13. As a result of our decision rendered above upholding the order of the DRP excluding the concerned six comparables from the final list of I . T. A . N o 1 3 0 / KO L / 2 0 1 6 Assessment year: 2011-2012 & C . O. N o. 1 8 / KO L / 2 0 1 6 ( i n I TA N o. 1 3 0 / KO L / 2 0 1 6 ) A s s e s s m e n t Ye a r : 2 0 1 1 - 2 0 1 2 Page 16 of 16 comparables, the issues raised in the Cross Objection filed by the assessee seeking inclusion of three comparables selected in the T.P. Study Report and claiming working capital adjustment have become infructuous, as agreed even by the ld. Counsel for the assessee. We accordingly dismiss the Cross Objection filed by the assessee.

14. In the result, the appeal of the Revenue and Cross Objection of the assessee both are dismissed.

Order pronounced in the open Court on May 18, 2018.

                        Sd/-                                      Sd/-
                  (A.T. Varkey)                             (P.M. Jagtap)
                Judicial Member                           Accountant Member

Kolkata, the 18 t h day of May, 2018 Copies to : (1) Deputy Commissioner of Income Tax, Circle-12(2 ), Ko lkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069 (2 ) M/s. Sc henck Process India Limited, EN-26, Amrit Tower, 6 t h Floor, Sector-V, Salt Lake C ity, Kolkata-700 091 (3) Dispute Resolu tion Panel-2, New Delhi (4) Commissioner of Income Tax (Appeals)-

                  (5)      Commissio ner of Income Tax-     ,
                  (6)      The Depart ment al Represent ative
                  (7)      Guard File


                                                                                 By order

                                                               Senior Private Secretary,
                                                                Head of Office/D.D.O.

Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.