ADVANCE POWER DISPLAY SYSTEMS LTD,SEEPZ , ANDHERI- EAST vs. ASST. COMMISSION OF INCOME TAX-9(1)(1), AAYKAR BHAVAN , CHURCHGATE, MUMBAI

Without prejudice to the above, the Ld. CIT(A) failed to appreciate that, the Appellant's case falls within the margin of +/- 3% , as provided u/s 92C(2) of the and therefore no addition is at all warranted

3 In the facts and circumstances of the case and in law, the adjustments as affirmed by the Ld. CIT(A) deserve to be reversed and deleted in toto being contrary to the extant law.

1 In the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the disallowance of Rs. 2,08,825/- u/s 40A(a) of the Act being cash payments made in excess of Rs. 20000/- being payments made to Agents for clearance of goods from the port without appreciating that the same were made out of business compulsions and therefore no disallowance was at all called for on the same.

The appellant craves leave to add, amend, alter, delete or modify, all or any of the foregoing grounds of appeal, if an when necessary.”

Representatives of both the sides were heard at length. Case records carefully perused and the judicial decisions relied upon duly considered along with the documentary evidence brought on record in light of Rule 18(6) of the ITAT Rules.

Briefly stated the facts of the case and that the assessee is 100% Export Oriented Unit (EOU) engaged in the business of manufacturing of Switch Mode Power Supplies (SMPS) used in computer industry and information technology applications with end users as Cisco Systems Inc., Hewlett Packard, Foundry networks, Brocade Communication systems, Juniper Networks and Riverstone Networks.

During the year the assessee entered into the following international transactions:-

During the course of transfer pricing proceedings, the Transfer Pricing Officer (TPO) observed that in Form 3CEB report, the assessee used cost plus method whereas in transfer pricing study report (TPSR), TNMM was applied, which was accepted by the TPO. The TPO further noted that that the assessee has benchmarked all the international transactions using aggregation approach and taking entity level margin which was also accepted by the TPO. It was also noted by the TPO that OP/OC taken as PLI and the assessee itself was taken as the tested party to justify the ALP under TNMM.

The assessee selected the following three comparable companies:- Sr. No. Name of the Company OP/OC(%) 1 Circuit Systems (India) -0.08% Limited 2 Incap Ltd. 6.12.%

Toyama Electric

7 Average 4.26%

The margin of the assessee as per the TPSR is computed as under:- Particulars Amount (Rs) Operating Income A 2,140,087,822 Export Sales 4,113,401 Sale of Scrap generated from manufacturing process

Based on the above, the assessee concluded that its international transactions are at ALP. The TPO did not accept the margin working provided by the assessee and re-computed the same as under:- Particulars Amount (Rs) Operating Income A Export Sales 2,140,087,822 Sale of Scrap generated from 4,113,401 manufacturing process Foreign Exchange Gain A 2,144,201,223 Operating Cost B 2,083,278,135 Operating Profit C=(A-B) 60,923,088 OP/TC *100 (i.e., the cost plus mark D= (C/B) 2.92% up, actually earned by the assessee)

The TPO proceeded by analyzing the comparables as provided by the assessee in its TPSR and asked the assessee to submit comparables based on search criteria i.e., FY ending 31/03/2013, company having export turnover more than 75% of total turnover, single year data, RPT <25% of operating revenue and functionally comparable manufacturing company. In response to the same, assessee chose the following three fresh comparables:- Name of the Company Product/Operations Fine Line Circuits Ltd. A company manufacturing Printed circuit boards which are main Raw material for our products Switch mode Power Supply

The TPO once again analyzed the comparable selected by the assessee and rejected Circuit Systems (India) Ltd., stating that it is not functionally comparable and rejected Incap Ltd. & Toyoma Electric, as they have nil exports. He further rejected Fine Line Circuits Ltd. stating that it is not functionally comparable and rejected Cosmos Ferrite Ltd. & Aplab Limited, as not comparables for having exports less than 75% of sales. Though, the TPO accepted that Toyoma Electric & Aplab Limited are in line with the business of the assessee but did not pass the export filter.

Thereafter, the TPO went on to select his own comparables for benchmarking the international transactions as under:- Name of the company Anchor Electricals Ltd. C&S Electric Ltd. Crompton Greaves Ltd. Finolex Cables Ltd.

The assessee did not accept the comparables selected by the TPO for the simple reason that all the comparable companies are not in the similar business as that of the assessee and as all of them are electrical companies whereas the product manufactured by the assessee is an electronic product. The TPO did not give much weightage to the objections raised by the assessee and went on to compute the ALP and adjustments thereon as under:- Name of the company OP/OC (%) Anchor Electricals Ltd. 10.58% C&S Electric Ltd. 7.48% Crompton Greaves Ltd. 7.79% Finolex Cables Ltd. 7.55% Havells India Ltd. 11.50% Khaitan Electricals Ltd. 5.74% Surya Roshni Ltd. 10.65% Veto Switchgears and Cables Limited 13.46% Halonix Ltd. 2.56% Arithmetic Mean 8.59%

Accordingly, adjustment of Rs.11,80,30,504/- was made which was upheld by the ld. CIT(A).

We have given a thoughtful consideration to the orders of the authorities below. The entire quarrel revolves around, whether the comparable selected by the TPO are in the same line of business as that of the assessee.

A certificate by a chartered engineer certifies that switch mode power supply (SMPS) is an electronic product and not an electrical product as electrical systems deal with the flow of electrical power of charge, while electronic systems deal with the flow of electrons. Electrical devices convert electrical energy into other forms, such as heat, light, or sound, to perform tasks. Electronic devices control the flow of electrons to perform tasks like calculations or amplifications. Hence, SMPS is an electronic product.

In our general understanding, electronic products are different from electrical products and since we are no technical experts in this I.T.A. No. 1532/Mum/2024; Assessment Year: 2013-14 I.T.A. No. 1535/Mum/2024; Assessment Year: 2014-15 I.T.A. No. 1534/Mum/2024; Assessment Year: 2015-16 I.T.A. No. 1533/Mum/2024; Assessment Year: 2016-17 Advance Power Display Systems Ltd., Andheri-east 9

We are of the considered view that apples cannot be compared with oranges, though, both are fruits and are kept in the same fruit basket but are totally different from each other. Therefore, in the interest of justice and fair play, we deem it fit to restore the controversy to the file of the TPO. The TPO is directed to bring comparables on record which deal in electronic products supported by the certificate of some technical experts.

Since the assessee is a 100% EOU, it would be proper to apply filter of export turnover of more than 75% of the total turnover and further related party transactions (RPT) should be less than 25%. The assessee is also free to bring fresh comparables in line with its business to justify its determination of ALP keeping in mind the filters mentioned hereinabove.

Since the representatives of both sides fairly agreed on the aforementioned proposition also made during the course of hearing of I.T.A. No. 1532/Mum/2024; Assessment Year: 2013-14 I.T.A. No. 1535/Mum/2024; Assessment Year: 2014-15 I.T.A. No. 1534/Mum/2024; Assessment Year: 2015-16 I.T.A. No. 1533/Mum/2024; Assessment Year: 2016-17 Advance Power Display Systems Ltd., Andheri-east 10

The other related issue relates to denial of claim of capacity utilization which we direct the TPO to consider while determining the ALP.

The payment of Rs.2,08,825/- in cash payments made in excess of Rs.20,000/-, has been claimed to be made towards business exigencies, which needs further verification. Therefore, the AO is directed to examine the issue after affording reasonable and adequate opportunity of being her to the assessee.

Since the facts of the captioned appeals are identical, all the appeals are allowed for statistical purposes with the above directions.

In the result, the appeals of the assessee are allowed. Order pronounced on 11th July, 2024 at Mumbai. (RAHUL CHAUDHARY) ACCOUNTANT MEMBER Kolkata, Dated 11/07/2024 *SC SrPs *SC SrPs *SC SrPs *SC SrPs

( ) / The CIT(A)- िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 5. गाड" फाई/ Guard file. 6. आदेशानुसार/ BY ORDER,