The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has held that the persistent loss filter could be applied only if there was loss in three successive assessment years.
Assessee, Nordex India Pvt. Ltd was a wholly owned subsidiary of Acciona Windpower International S.L Spain engaged in assembly of wind turbine generators, including parts such as nacelle, rotor, tower etc.
The Assessing Officer noted that, the assessee had entered into international transactions with its associated enterprises in Spain that exceeded Rs. 15 crores. A reference was therefore made to the transfer pricing officer to determine the arm’s length price of the international transaction.
The assessee aggregated the purchases of raw materials and purchase of fixed assets under manufacturing segment. The only segment disputed by the TPO was in the manufacturing segment.
It was noted by the TPO that assessee computed its margin under the manufacturing segment to be 5.83%. Assessee selected six comparable with a median of 5.47% thereby treating its transaction to be at arm’s length under the manufacturing segment. Disagreeing with the transfer pricing study, the TPO applied certain filters, wherein the addition was made.
Nageshwar Rao, on behalf of the assessee submitted that the comparable was excluded by the TPO by applying persistent loss filter and this comparable had earned loss only for Assessment Year 2017-18 and during Assessment Years 2016-17 and 2015-16, it had earned profit.
He further submitted that the comparable was functionally similar with that of assessee, however was excluded by applying persistent lossmaking filter and comparable could not be rejected unless it was a persistent lossmaking company.
He also relied on the decision of Pune Tribunal in Yazaki Pvt. Ltd. vs. ACIT wherein it was held that persistent loss filter could be applied only if there was loss in three successive assessment years and that if there was a profit in any one of the three past Financial Years, then that company could not be excluded on the basis of this filter.
D.K. Mishra, who appeared on behalf of the revenue submitted that all these details were not filed before the DRP and therefore had not been verified.
The two-member Bench of Beena Pillai, (Judicial Member) and Padmavathy S (Accountant Member) remanded the comparable to the AO for necessary verification holding that if two out of the three preceding assessment year the comparable had earned profits it could not be held a persistent lossmaking company.
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