Document Fragment View

Matching Fragments

The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal."

We shall first take up assessee's appeal for A.Y. 2009-10

4. The brief facts of the case are that return of income for A.Y. 2009- 10 was filed on 30.09.2009 declaring total income of Rs. 4,61,39,040/-. The Transfer Pricing Officer (in short "TPO") in the order under Section 92CA(3) of the Act proposed an adjustment of Rs. 3,02,66,356/-. In the Weatherford Drilling & Production Services (India) Pvt. Ltd. vs. ACIT Asst. Years -2009-10 & 2010-11 draft assessment order, apart from confirming the additions made by the TPO, the Ld. Assessing Officer made disallowance under Section 40(a)(ia) amounting to Rs. 45,99,634/-. Aggrieved by the aforesaid draft assessment order the assessee filed objections before the Dispute Resolution Panel (in short "DRP"), Ahmedabad, wherein the DRP upheld the order passed by the Assessing Officer and enhanced the Transfer Pricing adjustment to Rs. 4,17,26,088/-. The assessee approached the ITAT against the aforesaid finding made by DRP, wherein ITAT restored the matter back to the TPO for conducting fresh benchmarking exercise to identify comparable companies engaged in manufacturing of industrial valves. In the set-aside proceedings, the TPO proposed an adjustment of Rs. 4,27,26,088/-. The assessee again approached the DRP and objected to adoption of export filter of > 50% of export sales and also objected to inclusion of GTN Ltd. as a comparable entity. Further, on a without prejudice basis, the assessee submitted that if the export filter is relaxed to 25% then both GTN and Tyco Sanmar Ltd. may be excluded as comparable entities. Further, the benefit of +/- 5% range may also be provided to the assessee in accordance with law.

5. In proceedings before DRP the assessee submitted that while completely the comparability analysis, the Assessing Officer adopted the export filter of > 50% as a result of which the only one company i.e. GTN Engineering Ltd. was taken as a comparable. The assessee placed reliance on several judicial precedents to support it's contention that only one comparable cannot represent the entire industry and therefore, the same needs to be rejected. According to the assessee, if sufficient Weatherford Drilling & Production Services (India) Pvt. Ltd. vs. ACIT Asst. Years -2009-10 & 2010-11 comparables are not available then the threshold limit should be relaxed so as to have a fair analysis of the matter. Further, the assessee also objected to inclusion of GTN Ltd. while making the comparability analysis on the ground that GTN Ltd. is a contract manufacturer whereas the assessee is a licensed manufacturer and is exposed to higher risk as compared to a contract manufacturer. Further, GTN serves to only one customer i.e. FMC, whereas the assessee serves multiple customers. Further, the assessee submitted that GTN is able to pass on the cost escalation in material inputs with increasing off take of valves and other products whereas the assessee is not able to pass such cost escalation. In view of the above, the assessee submitted that GTN may be excluded from the set of comparables. Further, in the alternative, the assessee also requested for exclusion of Tyco Sanmar Ltd. on a GTN, both from set off comparables in case export filter at > 25% is adopted. Further, after excluding GTN and Tyco Sanmar Ltd., the assessee gave a final set of four comparables. However, DRP rejected both the arguments of the assessee. The DRP noted that while the assessee is a 100% export oriented unit, the assessee did not choose to apply any "percentage of export" as a filter, which itself vitiates the benchmarking study of the assessee. Further, even in the hearing before the DRP, the assessee failed to explain why export sales were not used as a filter when the assessee is a 100% export oriented unit. Further, the DRP was of the opinion that the export revenue filter should not be further reduced below 50% only with the sole purpose of finding more comparables as it would amount to compromising on the quality of comparability and vitiate the process of Weatherford Drilling & Production Services (India) Pvt. Ltd. vs. ACIT Asst. Years -2009-10 & 2010-11 benchmarking. Further, the DRP held that, as to the contention of the assessee that GTN is a contract manufacturer and is able to transfer cost escalation to its Associated Enterprises (in short "AE") is a mere apprehension of the assessee based on conjectures and surmises. The assessee did not furnish any details or data to support this apprehension and hence, the objection of the assessee with respect of selection of GTN for benchmarking has been rejected by the TPO. Further, DRP relied on several judicial precedents to support the findings that Arm's Length Price (in short "ALP") cannot be determined by adopting only one company as a comparable. The DRP was of the view that it is not advisable to choose more comparables at the cost of quality of comparability. With regard to the alternate proposition of the assessee that the TPO had taken the export filter as > 25%, the DRP held that it did not approve of such exercise to have alternative proposition in respect of comparables since TP exercise is under taken to find out the most suitable comparable / comparables for benchmarking and once the exercise has been concluded by the TPO, there is no requirement to conduct another exercise by changing filters with the sole purpose of bringing in more comparables even at the cost of comparability. Without prejudice to the above observations, the DRP also rejected the assessee's contention that even if the export filter is taken at > 25%, GTN and Tyco Sanmar Ltd. are still liable to be included. DRP was of the view that the contention of the assessee that are RPT to sale ratio of Tyco is higher than 25% is found to be factually incorrect. The assessee has itself admitted that such transactions have not been reported as related party Weatherford Drilling & Production Services (India) Pvt. Ltd. vs. ACIT Asst. Years -2009-10 & 2010-11 transactions in the Annual Report of Tyco. Accordingly, the DRP held that both GTN and Tyco cannot be excluded from the set of comparables even if the alternative exercise done by the TPO by applying the export sales filter at > 25% were to be adopted.

6. The assessee is in appeal before us against the order passed by Hon'ble DRP, holding that in the instant facts, Ld. TPO was justified in taking export filter of > 50% and thereby including only one comparable i.e. GTN India to determine the Arm's Length Price of the assessee and holding that in the instant facts, only the GTN represents the industry standards. The Counsel for the assessee submitted that the Hon'ble ITAT had given a specific direction to exclude GTN from the set of comparable and to conduct a fresh comparability analysis. However, in the set-aside proceedings, again the same exercise was repeated by the Ld. TPO and later upheld by DRP and the benchmarking analysis was completed by taking into consideration only one entity i.e. GTN, which was also the case in the first / initial set of proceedings. Accordingly, it was submitted that the directions of Hon'ble ITAT have been not followed by the Revenue authorities wherein the ITAT had given a specific direction to conduct a fresh study by comparing the same or similar products so that a fair picture of the profit could be arrived in order to asserting whether the TP Adjustment is required to be made or not. Before us, the Counsel for the assessee submitted that adopting an export filter of above 50% would serve no fruitful purpose considering assessee's line of business, since there would not be many companies with whom a comparison could be made. It was keeping in view the Weatherford Drilling & Production Services (India) Pvt. Ltd. vs. ACIT Asst. Years -2009-10 & 2010-11 aforesaid fact that the Ld. TPO relaxed the export filter to > 25% so that additional companies could come within the fold of comparability analysis. However, the TPO / DRP did not take into consideration the directions of Hon'ble ITAT and effectively only repeated the same exercise again. Accordingly, the Counsel for the assessee submitted that GTN India may be excluded from set of comparables since it is a direct manufacturer and hence comparability analysis on the basis of GTN alone would not give acceptable results and further Hon'ble ITAT in the first round of appeal also give a specific direction to carry out a fresh benchmarking analysis after excluding GTN from the set of comparables. Further, the assessee submitted a draft comparability analysis and submitted that if GTN were to be excluded from the list of comparables then the Arm's Length Price computed by the Ld. TPO in alternative proposition (averaging 21.92%) falls within the +/- 5% tolerance range of assessee's margins (19.31%).