Madura Coats Private Limited Vs ACIT (ITAT Chennai)
Summary: Madura Coats Private Limited, a licensed manufacturer of Coats Group in India engaged primarily in manufacturing sewing threads and accessories, appealed against the final assessment order dated 28.10.2024 passed pursuant to directions of the Dispute Resolution Panel under section 144C of the Income-tax Act, 1961. The assessment sustained a transfer pricing adjustment of Rs.9,06,00,000/- in respect of the manufacturing segment.
During AY 2021-22, the assessee undertook international transactions with its Associated Enterprises (AEs), including exports of grey threads and finished goods amounting to Rs.272.13 crores and purchases of goods/raw materials amounting to Rs.6.99 crores. Other international transactions were accepted to be at arm’s length and were not in dispute.
For benchmarking the manufacturing segment, the assessee adopted the Transactional Net Margin Method (TNMM), using Operating Profit to Operating Revenue (OP/OR) as the Profit Level Indicator. It selected 88 comparables having an arm’s length range of 3.60% to 6.55% and a median of 5.12%. The relevant year coincided with the COVID-19 pandemic. The manufacturing facilities remained closed for approximately six weeks and thereafter operated with reduced factory shifts. Turnover declined by 24.53% compared with the preceding year and the assessee incurred an operating loss of 0.95%.
