Tax appeal outcomes: 2004-05 dismissal, 2005-06 remittance for review. Section 80HHC deduction reconsideration.

The appeal for A.Y. 2004-05 was dismissed as the upward revision based on ALP determination was not sustained. The appeal for A.Y. 2005-06 was allowed for statistical purposes, remitting the matter back to the AO for re-examination. The issue of excluding profit on the sale of DEPB license for computing deduction under Section 80HHC was also remitted back to the AO for fresh consideration following the Supreme Court's ruling in Topman Exports.

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Issues Involved:
1. Computation of income from international transactions by determining the arm's length price (ALP) for A.Y. 2004-05 and A.Y. 2005-06.
2. Exclusion of profit on sale of DEPB license for computing deduction under Section 80HHC of the Act for A.Y. 2004-05.

Detailed Analysis:

1. Computation of Income from International Transactions by Determining the Arm's Length Price (ALP):

A.Y. 2004-05:
- The core issue was whether the cost plus method or the Transaction Net Margin Method (TNMM) should be used to determine the ALP.
- The Assessing Officer (AO) referred the case to the Transfer Pricing Officer (TPO), who used TNMM, comparing the assessee with M/s. Audco India Ltd., and made an upward adjustment of Rs. 72,95,381/-.
- The assessee argued that the cost plus method was more appropriate due to differences in business operations and risks between the assessee and the comparable company.
- The CIT(A) favored the assessee, noting that the TPO had not justified rejecting the cost plus method and highlighted significant operational differences between the assessee and M/s. Audco India Ltd.
- The Tribunal observed that the TPO had reasonably adopted TNMM but had not considered research and development expenses, which, if included, would nullify the profit margin difference.
- Consequently, the Tribunal held that the upward revision based on ALP determination could not be sustained.

A.Y. 2005-06:
- The TPO used TNMM again but compared the assessee with M/s. Orson Holdings Co. Ltd and M/s. Sakthi Auto Ancillary P Ltd, leading to an upward adjustment of Rs. 3.94 lakhs.
- The Tribunal found the TPO's selection of comparables inconsistent and remitted the matter back to the AO for re-examination.

2. Exclusion of Profit on Sale of DEPB License for Computing Deduction under Section 80HHC:
- The CIT(A) excluded the profit on the sale of DEPB license from the computation of deduction under Section 80HHC.
- Both parties agreed that the Supreme Court's decision in Topman Exports v. CIT (342 ITR 49) was applicable.
- The Tribunal remitted this issue back to the AO to be decided afresh in light of the Supreme Court's decision.

Conclusion:
- The appeal for A.Y. 2004-05 was dismissed, and the upward revision based on ALP determination was not sustained.
- The appeal for A.Y. 2005-06 was allowed for statistical purposes, with the matter remitted back to the AO for re-examination.
- The issue of the DEPB license profit exclusion was remitted back to the AO for fresh consideration in line with the Supreme Court's ruling in Topman Exports.

Order Pronounced:
- The order was pronounced on 9th January 2014 at Chennai.

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