TaxTMI 
TaxTMI 
2010 (4) TMI 686
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....f the assessee-company is Rs. 35.81 crores and total purchases amounting to Rs. 45.37 crores. During the year, the assessee made sales of Rs. 7.66 crores and purchases of Rs. 14.36 crores from its AE. These purchases consisted of 31.65 per cent of total purchases by the assessee and sales are 21.41 per cent out of total sales. During the year, the assessee has reported an operating margin on sales and on cost at the rate of 3.58 per cent and 2.82 per cent respectively. (5) The assessee has used CPM for purchase and CPM for sales for computing the ALP of the international transactions. CPM method used by the assessee is rejected, since the assessee has not furnished the gross margin earned by it on international transactions and the gross margin earned by the comparables. Further, in case of CPM, one to one comparables, i.e., invoice by invoice are not provided by the assessee. Further, the comparables used and reasoning for considering the same as comparables has not been provided. Also this office cannot use external comparables in the form of limited companies for CPM since the manner in which the financial statements of companies are available; it is difficult to compute accu....
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.... grounds :- "(1) That the learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 63,00,000 made on account of TP adjustment under section 92CA(3) of the Income-tax Act, 1961 as worked out by the TPO. (2) That learned CIT(A) has erred in law and on facts in directing the Assessing Officer to treat the interest on FDR amounting to Rs. 1,16,228 as business income instead of income from other sources ignoring various Court's decisions including Apex Court's decision in the case of Tuticorin Alkali Chemicals & Fertilizers v. CIT [1997] 227 ITR 1721. (3) That learned CIT(A) has erred in law and on facts in directing netting of interest. (4) That learned CIT(A) has erred in law and on facts in directing the Assessing Officer to exclude the export receipt of rough rejection of diamonds from the total turnover ignoring the judicial pronouncement in the case of Classic Diamonds (I) Ltd. (supra), which is still in force and also the Board's Circular in F.No. 178/206/83- 55(A-1), dated 22-5-1984, and subsequent clarifications on the issue thereof. The appellant prays that the order of learned CIT(A) on the above grounds be set aside and that of the Assessin....
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.... or to be provided to any one or more of such enterprises." Section 92(C) reads as follows : "92C. Computation of arm's length price.-(1) The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe 78, namely :- (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board." Rule 10B reads as follows : "10B. Determination of arm's length price under section 92C.-(1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely. . . . 11. Plain reading of the above provisions ....
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....ctions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin, thus, established is then taken into account to arrive at an arm's length price in relation to the international transaction. 8. A plain reading of the above shows that TNMM requires comparison of net profit margins realised by an enterprise from an international transaction or an aggregate of a class of international transactions and not comparisons of operating margins of enterprises. For arriving at this conclusion, we drew strength from the decision of Mumbai 'L' Bench of the Tribunal in the case of UCB India (P.) Ltd. v. ACIT 121 ITD 131 (Mum.) = (2009-TIOL-184-ITAT-MUM) where it is held that section 92C, read with rule 10B(1)(e) deals with Transactions Net M....
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.... against the assessee by the judgment of Hon'ble Bombay High Court in the case of CIT v. Asian Star Co. Ltd. Thus, this ground is also rejected. 9. Coming to ground No. 4, learned CIT(A) has heavily relied on the decision of Mumbai Bench of the Tribunal in the case of Sheetal Mfg. Co. (supra) and directed the Assessing Officer to reduce turnover of rough diamond exported; from the purchases of the assessee and recomputed deduction under section 80HHC. In our considered opinion, decision of ITAT 'A' Bench in the case of Sheetal Mfg. Co. (supra) is not applicable to the facts of this case. In the case of Sheetal Mfg. Co. (supra), defective diamonds were about 0.24 per cent of the total turnover. This was negligible. These were nothing but wastage and equivalent to scrap as per the finding of the Tribunal. Finding in that case is that rejected diamonds are generated during the course of cutting and polishing and, hence, Bench had considered the same as equivalent to scrap. In the case in hand, rough diamonds which were rejected, constitute 32.98 per cent of the total turnover. By no stretch of imagination, such high percentage can be called 'scrap' which has arisen or generated dur....