TaxTMI 
TaxTMI 
2010 (11) TMI 839
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....s and in law, the CIT(A) has failed to appreciate that by making a transfer pricing adjustment of Rs. 10,426,928 based simply on difference in operating margins of the appellant and comparable cases the ld. Assessing Officer has ignored that adjustment has to be made in relation to value of international transaction with AE only and not with reference to total value of all the transactions undertaken by the appellant which in fact included almost 90 per cent of the transactions with unrelated independent parties." 2. The assessee is an engineering and construction company and is a joint venture between Sumitomo Mitsui Construction Co. Ltd., Japan (SMCC Japan) and Kairali Construction India. SMCC Japan is one of the leading construction companies in the world and in India it has its presence in the form of assessee company. The international company has a stake of 80 per cent in the assessee company and the rest 20 per cent share belongs to Kairali Construction India. The assessee is executing a number of construction projects on turnkey basis. Its role started with helping the prospective client in site selection, water and soil investigation, information regarding local site cond....
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....25,03,849 Arm's length margin 5.30% Arm's length operating profit which should have been earned 4,88,92,703 Actual operating profit earned 3,84,65,795 Difference being the adjustment required to be made to the price of international trans. 1,04,26,908" 6. Under these facts, it was argued by the ld. AR that the international associate enterprise transaction of the assessee are only to the extent of 9.71 per cent of the total turnover of the assessee and, therefore, the other part of the total transactions, namely, 90.29 per cent related to the parties other than associate enterprise and, thus, he pleaded that the Assessing Officer while working out the difference in arm's length price has taken into consideration the entire transactions entered into by the assessee. He has produced before us a calculation according to which the addition which could have been made on that account was to be restricted only to a sum of Rs. 10,12,874 and he has produced that computation which reads as under :- "Computation of working of adjustment having regard to the value of international transactions of the assessee. Particulars Amount ( ) Total operating revenue ('OR') ....
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....urpose of manufacturing items. The assessee has stated that the operating profit if applied to 45.51 per cent of the turnover would come to Rs. 35,52,573 as against operating profit of Rs. 24,35,175 booked by the assessee, and the difference thereof would only be called for to be made as addition to the profit shown by the assessee. We, therefore, direct the Assessing Officer to modify the assessment and make the adjustment only to the extent of difference in the arm's length operating profit with adjusted profit with reference to the 45.51 per cent of the turnover, and not to the total turnover of the assessee. Therefore, to this extent, the addition made by the Assessing Officer and further confirmed by the CIT(A) is reduced. We order accordingly." 8. Further, it is the case of the ld. AR that the proviso to section 92C(2) of the Act provides a standard deduction of 5 per cent to the tax payer and the only condition for availing such benefit is that it is subject to the option of the tax payer. Thus, it was pleaded by ld. AR that 5 per cent adjustment should be given to the assessee and for such proposition he has relied upon the following decisions :- (i) Philips Software Cent....
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....lear. The Assessing Officer is taking the entire turnover while computing the arm's length price whereas the international transactions of the assessee constitute only 9.71 per cent of the total transactions. The matter being clear from the record itself, we do not consider it proper to restore this issue to the file of CIT (A). The case of the assessee is well supported by the decision of Coordinate Bench in the case of IL Jin Electronics (I) (P.) Ltd. (supra). Applying the said ratio, we direct the Assessing Officer to modify the assessment and make the adjustment only to the extent of difference in arm's length price operating profit with adjusted profit with reference to 9.71 per cent of the turnover and not to the total turnover of the assessee. 11. So far as it relates to grant of 5 per cent profit, that issue is also supported by the aforementioned decisions relied upon by ld. AR. Therefore, we direct the Assessing Officer to give the said adjustment also to the assessee. 12. To make the matter simple, ld. AR was required to submit a chart giving the calculations regarding above adjustments to arrive at an arm's length price in respect of international transactions of the ....