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Income Tax Appellate Tribunal, DELHI
Before: SHRI RAMIT KOCHAR & SH. YOGESH KUMAR U.S.
Assessee by Ms. Shashi M Kapila, Adv, Shri Pravesh Sharma, Adv& Shri Sushil Kumar, Adv Revenue by Sh. S. K. Jadhav, CIT DR Date of Hearing 22/04/2025 Date of Pronouncement 21/07/2025 ORDER
PER YOGESH KUMAR, U.S. JM:
The present appeal is filed by the Assessee against the final assessment order dated 09/07/2018 passed u/s 143(3)/ 144C of the Income Tax Act, 1961 ('Act' for short) pertaining to the Assessment Year 2014-15.
The Grounds of Appeal
are as under:-
1. On the facts and in the circumstances of the case, the Ld. TPO/DRP erred in making adjustment of Rs. 4,39, 30,329 to the international transactions pertaining to Purchase of Raw Materials, Other Materials and Payment of Royalty segments u/s 92CA of the Act.
While doing so, the Ld. AO has inter alia erred in: 1.1 Rejecting the appellant's contention for selection of Foreign Associated Enterprises ('AEs) as the Tested Party without appreciating that the Assessee Company has substantiated the availability and reliability of financial data of overseas comparable companies, 1.2 Rejecting Cost Plus Method (CPM) and in the motu carrying out fresh search under TNMM Method 1.3 In carrying out comparability analysis under TNM Method without carrying out proper FAR analysis of the tested party and of the comparables selected by him 1.4 Selecting certain companies which are otherwise incomparable. 1.5 Rejecting companies otherwise functionally comparable on the ground of persistent losses for a consecutive period of two years instead of period of three years. 1.6 Not selecting companies, though functionally comparable, because of turnover of less than Rs. I crore. 1.7 Incorrectly computing the net margin of the tested party and of the comparables.
2. On the facts and in the circumstances of the case, and in law, the Ld AO erred in initiating the penalty proceedings under Section 271(1)(c) of the Act wherein the addition sustained is merely difference of opinion and does not reflect any omission or misrepresentation of facts. The Appellant prays that the Ld AO be directed to drop the penalty proceedings initiated under Section 271(1)(c) of the Act. The Appellant craves leave to amend, alter or add fresh grounds of appeal during the course of proceeding.
Additional Ground of Appeal:
That in the facts and circumstances of the case and in law, the Ld. TPO erred in:
1. That on the facts and circumstances of the case the Ld. TPO/ DRP erred in law in selecting Remson Industries as a suitable comparable.
2. That on the facts and circumstances of the case the Ld. TPO/ DRP erred in law in the operative revenue treating companies having export income of more than 35% of its total revenue as comparable.
3. That on the facts & in the circumstances of the case the Ld. TPO/DRP erred in law in not making adjustment for amount of export incentive under Rule 10B(2)(d) of the IT Rules.
Brief facts of the case are that, the Assessee filed return declaring loss of Rs. 9,03,80,937/-, the case of the Assessee was selected for scrutiny through CASS for complete security. The Assessee has been issued with notice u/s 143(2) and u/s 142(1) of the Income Tax Act, 1961 ('Act' for short) along with questionnaire. In response to the notices, the Assessee furnished the information and made submissions through his representative. Since there were some specified transaction within the meaning of Section 92CA of the Act, a reference u/s 92CA(3) of the Act made to the TPO for determining the Arm’s Length Price u/s 92CA (3) of the Act.
The TPO vide his order dated 24/10/2017, determined the adjustment/difference on account of Arm’s Length Price in respect of international transaction with Associated Enterprises at Rs. 8,77,88,022/- and was added to the return income of the Assessee company, followingthe order of the T.P.O., the draft assessment order came to be passed on 04/12/2017.
Aggrieved by the Draft Assessment Order, the Assessee field objection before the DRP. The DRP issued directions to the TPO vide order dated 01/06/2018 and following directions of the DRP, the TPO passed order dated 27/06/2018 by proposing to make following TP Adjustments.
Particulars Revised Adjustment u/s 92CA of the Act (in Rs.) Operating Revenue A 44,77,57,730 %Arm’s Length Margin (OP/OI B 4.02 Operating Cost (Actual) C 48,30,10,842 Arm’s length Profit D=A*B 1,80,08,684 Adjusted profit of Daido India after E=A-C (3,52,53,112) capacity utilization TP Adjustment F=D-E 5,32,61,796 Value of international transaction G 43,48,17,719 Proportionate cost H=G/C 82.48% Adjustment I=F*H 4,39,30,329/-
A final assessment order came to be passed u/s 143(3)/144C of the Act by making the adjustment of Rs. 4,39,30,329/- to international transactions pertaining to purchase of raw materials, other materials and payment of royalty u/s 92CA of the Act. The Revenue while making the above adjustments, selected 12 comparables.The details of the Companies finally selected by the DRP are as under:-
Name of the Company Revised OP/OC after working Capital Adjustment 1 Rane Brake Lining Limited. 1.81% 2 Aurangabad Electricals Ltd. 4.39% 3 Sankei Giken India (P) Ltd. 5.37% 4 Talbors Engineering Private Ltd. 2.56% 5 Roots Industries India Ltd. 3.22% 6 Fiem Industries Ltd. 7.49% 7 GNA Axles Ltd. 5.52% 8 Roop Automotives Ltd. 10.40% 9 Lumax Automotive Systems Ltd. 2.88% 10 Remsons Industries Ltd. 3.19% 11 Dali & Summer Engineering Ltd. -0.52%
12 Mindarika India Private Ltd. 1.95% Average 4.02% Asessee’s OP/OI Post DRP order -7.87% 7. Aggrieved by the final assessment order dated 09/07/2018, the Assessee preferred the present Appeal on the grounds mentioned above.
The Ld. Counsel for the Assessee vehemently submitted that the Assessee is engaged in the business of manufacturing of trading of automotive chains (i.e. Drive Chains, Cam Chains & Silent Chains) and Sprocket Kits, which are noncoreautomotive components items.
The Ld. Counsel has also taken us through the definitionunder Rule 10TA Clause (b) & (h) of the Income Tax Rules and also relied on the order of the Tribunal in the case of DCIT Vs. Minda Acoustic Ltd. 107 Taxman.com 185 (Delhi Trib) and Sanden Vikas India Ltd. Vs. ACIT, New Delhi (2008) 114 Taxmann.com 185 (Del-Trib). Thus the Ld. Assessee's Representativesubmitted that, the filter of ‘Non-Core Components’ or otherwise must be applied for the purpose of selecting comparability of entities by TPO/DRP. Therefore, the Ld. Counsel has sought for exclusion of 7 comparablesand sought for inclusion one company i.e.: Auto line Industries in the main grounds of Appeal and by way of additional ground sought for exclusion of one more
The Ld. Department's Representative submitted that the Ld. TPO rightly selected the comparables, the objection of the Assessee for the exclusion of those Companies are generic in nature and further submitted that one of the companyselected by the Assessee himself, which cannot be objected by the Assessee in the present Appeal. The Ld. Department's Representative by making detail argument and also relying on the order of the TPO/DRP/A.O., taken us through the documents produced in the paper book and sought for dismissal of the Appeal.
We have heard both the parties and perused the material available on record. It is relevant to observe that in respect all the comparables, the TPO has given common observation/reasons. For the sake of convenience the same is reproduced as under:-
“6. Among the final comparables that passed the quantitative filters imposed by us, the companies engaged in manufacturing of non-core auto parts were considered to comparable to the assessee.
“Para 5.4.1 It has been noted from the annual reports of these that comparables these engaged are into manufacturing of auto parts. The same has been accepted by the assessee also that comparables engaged these are into manufacturing of auto parts. However, the Assessee contended that products are different. The contention of the assessee is rejected due to the following:-
5.4.2. purpose For comparability the of one has to see whether the company has passed approximating filters the business conditions of the taxpayer and on the basis that main activity is that of providing business services, which may not be exactly same as that of taxpayer but requires engagement of employees with similar qualifications. It is with this view, every company should be seen and effort should be to find the substantial activity of the company and not to get dis oriented with certain key words, effort for developing intellectual property specialization, tools used by the company for delivering services and given special name company by distinguish itself.
5.4.3 Hence, the effort should be to see the company's activity in its entirety and find out what it is doing substantially.
Further, when the TNMM is used for comparability analysis the advantages are that it allows some degree of flexibility and tolerance in the matter of selection of comparables. Under this method, net margins are compared and some amount of functional dissimilarity can be tolerated at the net margin level, i.e. to a certain extent, functional dissimilarities are subsumed and taken care of at the net margin level as compared to the gross margin in Resale Price Method (RPM) comparable Uncontrolled Price (CUP) Method."
Further, even the Ld. DRP also mentioned that all the comparable companies selected by the TPO are into manufacture of ‘noncore’ auto parts. Number of years of operation has affected efficiency has not been brought out by the Assessee. Further, observed that under TNMM broad similarity of function to be seen and FAR is also similar, accordingly affirmed the view of the T.P.O.
The co-ordinate bench of the tribunal in the case of Sanden Vikas India Ltd Vs. ACIT, new Delhi (2020) 114 taxmann.com 185 (Delhi- Trib.), while deciding similar issue, held at a manufacturer of non- comparable company cannot be compared with entities manufacturer core-auto components under TNMM with non-core auto components manufacturer. The relevant portion of the order of the co-ordinate bench is as under:-
“17. Bare perusal of the aforesaid order goes to prove that the ld. CIT(A) has firstly made up his mind to select M/s. Subros Limited as the comparable and then discussed its comparability without conducting the FAR analysis of other comparables and without looking into if the comparables in this case are to be chosen on the basis of core and non-core function of automobile companies. No doubt, the ld. CIT (A) has used word FAR analysis at many places in the impugned order but FAR analysis of comparables, if any conducted by the ld. CIT (A) is not visible in the order.
18. Ld. AR for the taxpayer by relying upon the decision rendered by the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. (2015-TII-33-HC- DEL-TP) and order passed by the coordinate Bench of the Tribunal 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-à-vis the comparables to benchmark the international transaction.
19. In Rampgreen Solutions Pvt. Ltd. (supra), Hon'ble High Court held that, "a higher product and functional similarity ITA No.826/Del./2017 would strengthen the efficacy of the method in ascertaining 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.
So, we are of the considered view that distinction of the core and non-core auto components is the key to benchmark the international transactions undertaken by the taxpayer in this case and this view is supported with the decision of the coordinate Bench of the Tribunal in Minda Acoustic Ltd. (now Minda 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 identical facts of this case by returning following findings :-
"14. Based on this distinction brought in the statute, the Ld. DRP has rejected most of the comparables selected by the TPO holding that these comparables were manufacturing core products which cannot be compared with the assessee which is purely into production of noncore auto components mainly various types of horns. From the perusal of the definition of 'core auto components' as given in the Rules, it can be inferred that core auto components are crucial part of automobile that requires sophisticated technology for manufacturing and such components are very lifeline like the heart and brain of automobile which are vital for power performance, actual running and stability of the automobile. Like engines and engine parts are inextricably link with the performance of the vehicle, without which vehicle cannot move; transmission system which assists in running of car; steering and steering systems, gears ITA No.826/Del./2017 and clutches; axels and wheels; suspensions which balances the vehicle; breaks, etc. In other words, without the core part neither the automobile can run nor can it function. Whereas non-core auto components which are not covered under the core components could be like accessories, equipment, vehicle parts such as head lights, wipers, dash board equipment, horns, etc., which are used in the vehicle but they are not vital for the actual running of the vehicle."
Following the order (supra) passed by the coordinate Bench of the Tribunal making distinction in core and non-core auto components, we are of the considered view that benchmarking in this case is required to be carried out with FAR analysis of the comparables keeping in view the distinction between core and non- core auto components because a company manufacturing core components cannot be compared with company manufacturing non-core auto components.”
The Assesseevide Ground Nos. 1.3 and 1.4, sought for exclusion of seven comparable Companies.As mentioned above, the Ld. TPO has given identical reason for inclusion of the above company and the Ld. DRP observed that the above company manufactures non-core auto parts, number of years of operations has affected efficiency has not been brought out by the Assessee and observed that under TNMM broad similarity of functions to be seen and the FAR is similar.
Accordingly the Ld. DRP upheld the action of the Ld. TPO in including the above companies. Keeping in mind that the Assessee company engaged in manufacturer and sale of non-core automotive components and which has not been disputed by the Ld. TPO or DRP and also considering the ratio laid down by the coordinate bench of the Delhi Tribunal (supra), the comparable companies are adjudicated as under:-
RoopAutomotives Limited: 14. Roop Automotives Ltd. manufactures core components for four wheeler in commercial and passenger vehicles category, unlike the assessee company, which manufactures non-core components for two wheeler vehicles. The said information can be corroborated from its functional profile of Roop Automotives Annual Report produced at Pg.
1108, 1109, 1117 & 1148 of paper book Vol-IV. The relevant portion are as under:-
"38 Segment Reporting The Company is primarily engaged in the business of manufacture of Auto Components for four wheelers in both in heavy carriage and passenger car vehicle category. The exports turnover of the Company is more than 50% of its total turnover. The company is engaged primarily in the manufacture and assembly of automotive components such as Universal Joints, Steering Column Shaft. Rotor Oil Filter (ROF) Carden Joints, Case Differential for the four wheelers both in heavy carriage and passenger car vehicle category... Snapshot of the company website is as under:- "Roop Automotives Limited (ROOP) is currently into manufacturing steering Yokes (both cold/hot and ferrous/non-ferrous forging, sheet metal), Steering Joints, Slip Shaft Assemblies, I Shaft Assemblies, Steering Columns, Differential Housing, Steering Gearbox housing. Axle drive shafts, Tie Rod Ends & Ball Joints, Propeller Shaft Yokes, Spindle Axle, Arms & Levers, Connecting Rods etc. both international OEMS, Tier 1 and Tier 2 suppliers. Over the years, we have acquired unique engineering strength and understanding of the complexities involved with the manufacturing of critical automotive parts. Today, our state-of-the-art manufacturing units are equipped with the latest machinery that can fulfill all the requirements of the clients with precision. We have been certified with IATF 16949, ISO 14001, ISO 45001 and as such follow the total quality management system (TQM).
The Functional profile of Roop Automotives Ltd reflected in the website are as under:- "Incorporated in 1990, Roop Automotives Ltd. is one of the largest OEM suppliers of auto components like steering yokes, automotive connecting rods, automotive housing, differential housings, connecting rods, proportionating valves, special bolts, engine connecting rods, automobile housing, PTO and gears etc. We are an established name in auto components industry and have strong presence in tier-II segment of the industry. Over the years, we have acquired unique engineering strength and understanding of the complexities involved with the manufacturing of critical automotive parts. Today, our state-of-the-art manufacturing unit is equipped with the latest machinery that can fulfill all the requirements of the clients with precision. We have been certified with ISO/TS 16949 and ISO 14001 and as such follow the total quality management system (TQM). We deliver competitive advantage to our customers by harnessing the talents of our experienced professionals and attractive pricing policy.
As could be seen form the profile of the company, above company manufactures 'core auto components' hence ex-facie it is not a proper or suitable comparable. The company manufactures the components for four wheeler in commercial and passenger vehicles category, unlike the AssesseeCompany which serves the two wheeler vehicle industry. In view of the above, relying on the order of the co- ordinate bench of the tribunal in the case of Sanden Vikas India Ltd.(supra), we are of the considered opinion that, Roop Automotives Limited is not an appropriate comparable.
FIEM Industries is sought to be excluded by the Assessee from the list of comparables as the functions/assets/risks are entirely different from the Assessee Company.
As per the Functional Profile of the company as seen from its Annual Report produced at page 922 of the paper book Vol-IV, the Company is engaged in manufacturing of Automotive Lighting &Signalling Equipment, Rear View Mirrors, LED Luminaires for both Indoor & Outdoor Lighting, Integrated Passenger Information Systems with Display & Software for Railways, Metro, Airport & Busses (IPIS) and Plastic & Sheet Metal Components.
Further, in the Letter to Shareholder of the above Company [produced at pg. 923, 931 & 932 of the paper book Vol-IV],it is stated as under:
i) "Your Company inculcates a deep culture of continuous improvement in its products driven by Research & Development and adoption of new technologies with upgraded infrastructure. We are extremely passionate about our products and with a large line-up of new and exciting LED Luminaires, 'IPIS' and LED Panel with Display & Software, we are strongly confident to create niche in the market. We are continuously working on a strong pipeline of new and exciting range of products, which are highly technology & research driven. ii) The Company has entered into a 50:50 Joint Venture with Horustech Lighting SRL Italy and incorporated a Joint Venture Company, namely 'Centro Ricerche Fiem Horustech SRL' for setting up a design center during the year.
20. TheAnnual Report of the company ( produced Page 955 of the paper book Vol-IV), under 'Corporate Information' states as under:-
"The Company has Research and Development facilities located at Rai, Sonepat. Haryana which has been approved by Department of Science & Industrial Research, Ministry of Science & Technology. The Company is in the business of manufacturing and supply of auto components comprising of automotive lighting &signaling equipments, rear-view mirror, prismatic mirror, plastic moulded parts and sheet metal components for motorised vehicles, and LED luminaries comprising of indoor and outdoor lighting, display panels etc."
Further, the company is also into Non-auto business- LED for Railway, the Company's market is diverse it manufactures diverse products such as it provides parts to Railways & Buses and the Annual Report of the company statesas under: (which can be corroborated from Pg. 923 & 924-25 of PB-IV):
"With this strength of conviction towards growth, your management is relentlessly working to build future growth engines in the form of two new business verticals of LED Luminaires and "Integrated Passenger Information System with LED Display (IPIS) for Railways and Buses"
From the above it is obvious that FIEM India is entirely dis- similar to the assessee company in Functions/ Assets/ Risks hence it is not a proper comparable and has to be excluded as a comparable. It has huge Research & Development facilities, as well as export earnings. Hence the above Copmpany is not a proper comparable with the Assessee.
GNA Axles Limited:
22. The above company under the 'Corporate Information' (produced at Pg. 852 of Paperbook Vol-IV), states as under:-
GNA Axles Limited is a Company established in 1993. The Company manufacturers auto components for the four wheeler industry, primary product being Rear Axles, Shafts, Spindles and other Automobile Components for sale in domestic market and foreign market.
The company has manufacturing locations in Punjab, Phagwara.
As could be seen form the profile of the company, above company manufactures 'core auto components' hence the above Company is not a proper or suitable comparable. In view of the above, relying on the order of the co-ordinate bench of the tribunal in the case of Sanden Vikas India Ltd.(supra), we are of the considered opinion that, GNA Axles Limited is not an appropriate comparable.
As per the Annual Report on notes to Financial Statements under Corporate Information (produced at Page No. 878 of Paper book Vol-IV), the above Company is engaged in the business of manufacturing components such as Gear guard pedal, auto, Exhaust pipes for 4 wheelers muffler components, Rear Arm, AC parts cooling system for four wheeler as well as two wheelers in automobile industry. It is to be noted that items manufactured by the above Company are ‘core auto components' Rule 10TA(b)(i)&(ii) of the Rules.
Relying on the order of the co-ordinate bench of the tribunal in the case of Sanden Vikas India Ltd.(supra), we find that the above Company it is not an appropriate comparable with the assessee who is manufacturing non-core components for two wheelers only.
Aurangabad Electricals Ltd. 25. The annual report of the above Company under the head of corporate information states as under:
“Aurangabad Electricals Ltd. is a public companydomiciled in India and incorporated in India under the provisions of the Companies Act, 1956. The company manufactures automobile and brake system components which includes auto electrical components, aluminium die casting components, and fasteners. The company caters to both domestic and international markets. The company also generates power through windmill.” "(which can be corroborated from Pg. 487 of the paper book - III)
As per Rule 10TA(b)(iii), 'Break System parts are 'Core auto components'. Relying on the order of the co-ordinate bench of the tribunal in the case of Sanden Vikas India Ltd.(supra), we find that the above Company it is not an appropriate comparable with the assessee who is manufacturing non-core components for two wheelers only.
Roots Industries India Ltd. is established company since 1970 whereas it is the first year of operation by assessee. The Website of the company states as under:
‘Roots Industries India Private Limited is an exceptionally experienced, leading manufacturer of electric horns (70 dia to 150 dia) and electronic horns having multi-functional capabilities like Back up Alarm and USB chargers. RIL promotes its products to diverse segments including Automobile, Aerospace and Medical, Commercial furniture, Metrology, Comfort products, BLDC motors, Corporate Training & Electric Vehicles. RIL is the flagship of the famous Roots Group. Along with electric horns the Company has invested resources in various products like Haloger lamps, Friction products, Battery, Lubricants and much more. RIL has been at the forefront of manufacturing space, for the last - decades having state-of-the-art technology, unmatched quality and management practices tailored to the industry. RIL, shares its pride for being in some of the world's premium automobile brands such as BMW. Caterpillar, Daimler, Harley Davidson, Hyster-Yale group. NACCO. Navistar, Renault-Nissan, Toyota, VW group etc. One of its subsidiaries, Roots Auto Products Pvt. Ltd. has been a significant supplier of air horns with sizeable market share. The brand has 250+ product variants recognized by countries like North America, Europe, Middle East. Africa and the SAARC region."
The above Company manufactures for Automotive Solutions, Cleaning solutions, Commercial furniture, Casting components, Plastic moulding, Precision Tools, Die &Mould Solutions and Calibration Solutions. The Export turnover of the above Company was Rs. 5174.30 Lakhs in 2013-14, as compared to Rs. 4399.14 Lakhs in 2012-13. The tremendous growth in Export turnover of HEP segment has helped the company to achieve better overall turnover and profitability, which can be corroborated from Pg. 691 of the Paper book Vol-III.
The above Company is not only into automobiles industry, but has varied and diversified areas of manufacturing such as medical aerospace lab testing and commercial furniture manufacturing, which are not in the automobile industry. On the other hand, the Assessee's products are only in the automobile Industry. Hence functionally it is entirely mis-matched and not a proper comparable. In addition it has huge exports as well as R&D activities. For this it is obvious that this is not a proper comparable with the assessee as this company has full-fledged manufacturing facilities in different countries and vide range of products including electric horns, medical aerospace as well as commercial furniture. Whereas Assessee manufacture non-core components for two wheelers only in India. In view of the above, we are of the considered opinion that Root Industries India Ltd. is not an appropriate comparable.
Talbros Engineering Private Limited;
As per Annual Report of the Company under disclosure of principal products or services (produced at page 567 of the Paper book Vol-III), the types of products are: Rear Axle Shafts, Brakes, Radiators, mufflers, Exhaust Pipes, clutches. Thus clearly all products manufactured are core auto component as per Rule 10TA(b)(iii) of the Income Tax Rules, relying on the order of the co-ordinate bench of the tribunal in the case of Sanden Vikas India Ltd.(supra), we are of the considered opinion that, Talbros Engineering Private Limitedis not an appropriate comparable.
In view of the above discussions, we direct the Ld. TPO to exclude above comparables companies viz. Roop Automotives Ltd., Fiem Industries Ltd., GNA Axles Ltd., Sankei Giken India (P) Ltd., Aurangabad Electricals Ltd., Roots Industries India Ltd. and Talbors Engineering Private Ltd. Thus, we allow Ground Nos. 1.3 and 1.4 of the assessee.
In the additional ground No. 1 the Assessee sought for exclusion of the comparable viz. Remsons Industries Limited.
Remsons Industries Limited;
During the proceedings before the ld TPO the assessee submitted a set of 8 comparables based on the fresh search conducted by the Assessee including the above company namely Remsons Industries Ltd., which has been accepted by the ld TPO as comparable. Now by way of additional Ground No. 1, the Assessee seeks for exclusion of the said company.
As per the functional profile information provided at Page No. 1221 of the Paper Book the above Companyis in the manufacturing of Auto Products since the last 50 years. Delivering Products like Control Cables, Gear Shifters, Pedal Boxes, Winches, Jacks etc., the same is reproduced as under:-
‘Remsons is a Pioneer in the manufacturing of Auto Products since the last 50 years. Delivering best quality Products like Control Cables, Gear Shifters, Pedal Boxes, Winches, Jacks etc. We are an OEM manufacturer supplying to two, three and four wheeler vehicles, commercial vehicles and off highway vehicles all over India and automotive OEM's globally. We were first player to manufacture Control cables, in India. Some of the other products we manufacture are Gear Shifters, Flexible Shafts, Jack Kits, Winches, Pedal Boxes and Parking Brake Cable Assemblies, to name a few. In line with our future ready vision we are manufacturing state of the art sensor products across the automotive, earth moving, agriculture and marine sectors. With advanced manufacturing facilities across the country, including a brand new facility at Pune and an advanced manufacturing facility in UK our global presence has increased through through Joint Venture collaborations with Aircom Group a leading global manufacturer of Tire repair kits & Daichi a leading player in automotive infotainment systems."
The Co-ordinate Bench of the Tribunal in the case of DCIT Vs. Minda Acoustic Ltd. [2019] 107 taxmann.com 475 (Delhi), while excluding the above Company held as under:-
.. in cases of Suprajit Engineering and Remsons Industries Ltd., it is seen that these companies are engaged in manufacturing of control cables, push pull cables, parking brake assemblies which controls the mechanical functions of the accelerator, brakes, clutches etc. These again are core components of any vehicle without which the vehicle cannot run and is also classified as core component under safe harbour rules..."
In view of the above, we are of the considered opinion that, Remson Industries Ltd. is not an appropriate comparable. Accordingly, we direct the Ld. TPO to exclude the said company from comparables.
Thus, we allow additional Ground No. 1 of the Assessee
The Assessee vide main ground of appeal No. 1.5, sought for inclusion of the comparable company namely- Auto Line Industries.
38. Before the Ld. TPO the Assessee provided a set of 8 comparables based on the fresh search conducted by the Assessee including the above company. However, the said company has been rejected by the Ld. TPO on the ground that the Company is in persistent losses for a consecutive period of two years instead of period of three years.
The Assessee contended before the Ld. TPO/ DRP that,it is settled law that a persistent loss making company i.e. a company which incurs consistent losses for 3 or more years including the relevant year cannot be taken as a comparable. However, whereas a company has earned profit in one out of three years, it cannot be termed as a persistent loss making company, hence, contended that the said Company cannot be excluded as comparable. However, both Ld. TPO and DRP, have ejected the contention of the Assessee.
It is well settled now that where a company has earned profit in any year out of three years, it cannot be termed as persistent loss making company, hence the above Company cannot be excluded as comparable. The coordinate bench of the Tribunal in the case of Principal Commissioner of Income-tax v. Nokia Siemens Network India (P.) Ltd. [2019] 111 taxmann.com 445 (Delhi) held that loss-making companies should not be excluded where there was no dispute as regards functional profile of assessee being similar to said company.
Further, in the case of Imsofer Manufacturing India (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-11(1), New Delhi [2020] 121 taxmann.com 209 (Delhi - Trib.) held that the company in past 3 years had shown losses in 2 years only. Therefore, it could not be rejected as comparable on ground that it was a persistent loss making company.
In the case of John Deere India (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-11(1), Pune [2017] 77 taxmann.com 7 (Pune Trib.) the coordinate bench of this Tribunal has held that a company which had earned profits in one out of three years could not be said to be persistent loss making company and could not be excluded from the comparable list.
The coordinate bench of the Tribunal in the case of Walt Disney Co. (India) (P.) Ltd. v. Deputy Commissioner of Income-tax-7(3), Mumbai [2017] 81 taxmann.com 321 (Mumbai - Trib.) held as under:
"The Bench noted that in one of the last three years, the concern was in profits and, therefore, in this background it inferred that such a concern could not be considered as a persistent loss-maker. At the time of hearing, the learned representative for the assessee had drawn our attention to a tabulation prepared for three years ending 31.3.2006, 31.3.2007 and 31.3.2008, which shows that in the year ending 31.3.2006, the said concern had made a profit while there was loss in the other two years. In this background, therefore, it could not be said that as on the year ending 31.3.2008, which corresponds to the assessment year before us, such a concern was a persistent loss-maker so as to exclude it from the final set of comparables. Thus, following the ratio of the decision of the Pune Bench of the Tribunal in the case of Bobst India (P.) Ltd. (supra), we deem it fit and proper to direct the TPO/Assessing Officer to include the said concern in the final set of comparables."
Considering the above facts and circumstances and also following the above ratio laid down by the Tribunal, we are of the opinion that the Ld. TPO/ DRP committed error in rejecting the Autoline Industries Ltd. Co. Thus, we direct the Ld. TPO to accept the said company as comparable. Accordingly, we allow the ground No. 1.5 of the Assessee.
In the result, appeal of the Assessee is allowed.
Order pronounced in the open court on 21st July, 2025