OWENS CORNING (INDIA) P.LTD,MUMBAI vs. DCIT CIR 7(1), MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the assessee against the final assessment order dated 21.10.2011 passed in pursuance to the directions given by the Dispute Resolution Panel (in short referred to as “DRP”) vide its order dated 27.09.2011, on the following grounds: – 2 Owens Corning (India) Ltd. “1.The learned Assessing Officer ("hereinafter referred to as AO") and the DRP have erred in proposing a transfer pricing adjustment of Rs. 1,30,72,762 /- under section 92CA(3) of the Act, in respect of the international transactions entered into by the Appellant during the year ended 31 March, 2007.

3. The learned AO and the DRP have erred in rejecting comparable companies which were accepted by not only the predecessor AO but also the successor AO for the assessment year 2006-07 and assessment year 2008-09 respectively.

4. Without prejudice to the aforesaid grounds, the 3 Owens Corning (India) Ltd.

learned AO has erred in not granting the benefit of the variation / reduction of 5% from the arithmetic mean while determining the arm's length price for the adjustments made to the international transaction of the appellant as provided in the proviso to section 92C(2) of the Act prior to the amendment by the Finance Act (No. 2), 2009, effective 1st October, 2009.

5. The learned AO and the DRP have erred in not appreciating in the proper perspective the written submission filed by the Appellant before them in respect of all the above grounds.”

3.1. During the course of hearing, Ld. Senior Counsel of the assessee submitted, at the very outset that only issue involved in this appeal is that same comparables have been accepted in all prior and subsequent years, there is no change in facts or business of the assessee and in any case no such allegation has been made in the orders by any of the lower authorities. But, in the impugned year i.e. A.Y. 2007-08, surprisingly, the TPO did not accept these very comparables mainly on the 4 Owens Corning (India) Ltd. ground that they were dealing in different products. The DRP endorsed the order of the TPO without giving any proper reasoning. He drew our attention on the transfer pricing report and transfer pricing orders of earlier years as well as subsequent years to show that same comparables were considered for determination of arms length price and no adjustment was made since the transactions of the assessee were found to be within the range of ALP determined by the TPO in all those years. Our attention has also been drawn on the paper book filed by the department internal correspondence made between the TPO and the jurisdictional Director of Income Tax (TP) to show that in all the earlier years and subsequent years, same comparables were considered for bench marking the transactions of the assessee. It was also submitted that reasoning given by the TPO that these comparables were engaged into dealing of different products is also factually incorrect. It was submitted that the assessee is engaged in the manufacturing of fiber glass and these comparables were also engaged in the manufacturing of glass products. In view of all these facts, it was submitted that the order of the TPO is contrary to law and facts.

3.2. Per contra, it was stated by the Ld. CIT-DR that method adopted for benchmarking the transactions of the assessee was TNMM. The product similarity has to be seen while applying CUP method and not under TNMM because under the CUP, the focus is on the price of goods sold or transferred. In his support, he relied upon the judgment of Mumbai bench

5 Owens Corning (India) Ltd. of the Tribunal in the case of Diageo India (P) Ltd. v. DCIT 34 taxmann.com 284 and of special bench in the case of Maersk Global Centres (India) P. Ltd. ACIT 147 ITD 83 (Mumbai –Trib.)

3.3. We have gone through the orders of the lower authorities as well as orders of the preceding and subsequent years as were shown to us.

3.4. The brief facts are that the assessee company is joint venture between M/s. Owens Corning, Inc. USA and M/s. Mahindra & Mahindra Ltd. The assessee was engaged in manufacturing and trading of Glass Fibre reinforcement products. The impugned year (i.e., A.Y. 2007-08) is the 5th year of transfer pricing reference u/s 92CA of the Act. The brief history as noted in the TPO’s order is that no adjustment was made in any of the preceding four years. With the assistance of the parties, it has also been noted from the facts brought before us by way of paper book by the Ld. CIT-DR that no TP adjustment has been made even in the subsequent four years i.e. A.Ys. 2008-09, 2009-10, 2010-11 and 2011-12. It has been further shown to us that in all earlier years and subsequent years, same comparables have been accepted by the TPO. But, for benchmarking international transactions of the assessee in the year under consideration, these very comparables have been rejected. Surprisingly, no reason whatsoever has been given and nothing has been stated in the impugned order by the TPO or by the DRP whether there was any change in the facts or nature of business activities carried

6 Owens Corning (India) Ltd. out by the assessee company in the year under consideration as compared to the other years. Nothing has been mentioned even for the sake of mentioning, therefore, under these circumstances, we do not find it necessary to go any more into details or intricacies of the issues. Even, during the course of hearing before us nothing has been brought out by the Ld. CIT-DR to justify the contrary stand in the impugned year and nothing has been brought out showing any change in facts or nature of business activities or position of law. Under these circumstances, we do not find any justification with the TPO to reject these comparables. It is noted by us that during the course of transfer pricing proceedings, it was shown by the assessee that assessee demonstrated that taking OP/OI as its PLI, the arithmetic mean margin of the comparables was 8.71% which was less than the margin shown by the assessee at 12.63%. The TPO suggested changing the PLI as OP/TC and if the PLI is taken as OP/TC the arithmetic mean margin of the comparables was 9.96% which was less than the margin shown by the assessee at 13.70%. Thus, undisputedly, on facts, the margin of the assessee was within the permitted range of ALP. We find that adjustment made by the TPO was contrary to law, and therefore, same is directed to be deleted. Since we have deleted the adjustment on primary grounds, we are not deciding other grounds. Accordingly, ground no.1 to 5 of the main grounds may be treated as partly allowed.

contested the action of AO in increasing the books profits for the purpose of section 115JB by the amount of transfer pricing adjustment of Rs.1,30,32,762/-, while computing the total income of the assessee under the normal provisions of the Act.

4.1. The additional ground being purely legal and not requiring any investigation of fresh facts, the same was admitted in view of the judgment of Hon’ble Supreme Court in the case of NTPC 229 ITR 383. It is noted that section 115JB is self contained code. Only those adjustments are permissible to the book profit as have been prescribed u/s 115JB. The adjustment/additions made under the transfer pricing regulations are governed by altogether different sets of provision as contained in Chapter X of the Act. There is no such provision under the law that permits the AO to make adjustment on account of transfer pricing addition to the amount of profit shown by the assessee in its profit and loss account, for the purpose of computing book profit u/s 115JB. The law in this regard is clear. Reference is made to the judgment of Hon’ble Supreme Court in the case of Apollo Tyres Ltd. vs CIT 255 ITR 273. It is noted from the perusal of the assessment order that the AO has simply made addition by an amount of Rs.1,30,72,762/- to the amount of net profit as per profit and loss account for the purpose of computation of income u/s 115JB without even mentioning that under what provisions this addition was being made. Such an approach is highly unfair and brings undue and avoidable hardship to the 8 Owens Corning (India) Ltd. tax payers and we recommend that such a casual approach should be avoided by the revenue officers, as it may tarnish image of the income tax department, which may in turn discourage voluntarily compliance by the taxpayers. Thus, we delete the addition made by the AO. As a result, additional ground filed by the assessee is allowed.

Order pronounced in the open court on 22nd April, 2016.