TaxTMI 
TaxTMI 
2010 (5) TMI 530
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....onds, Hong Kong Ltd. b) Suashish Star Inc. (SSI) c) Ishish Jewellery LLC d) Star Diamond Group Inc., USA ('STAR') On being questioned by the TPO, the assessee justified the transactions under the overall TNM Method. It was submitted that the assessee's operating profit margin is 3.56% on sales and 3.70% on cost while that of comparables used by it is 3.27% on sales and 3.83% on cost. On the basis of details provided by the assessee it was submitted that the assessee earns a net margin of 5.38% on sale to the AEs and net margin of 1.77% on sale to non-AEs. Accordingly it was submitted that the same is to be at arms length. 4. The TPO perused the split financials provided by the assessee and rejected the same on the ground that the allocation keys used by the assessee for the purpose of split of the expenses are not appropriate. He observed that in case of allocation of manufacturing expenses like employees' remuneration, rent, etc., the allocation key used is sales which is not appropriate. According to him the ideal allocation keys should have been the number of employees, space utilised, etc. Since the segmental accounts prepared by the assessee are not based ....
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....s followed the basis as prescribed in the law and under the OECD principles in respect of its search for comparables to justify the ALP. The assessee has selected itself as tested party and its result has been benchmarked with the result of the comparable companies. The provisions of Rule 10B(2) of the Income-tax Rules, 1962 (the Rules) and provisions of section 92CA(3) r.w.s. 92C(3)(c) were brought to the notice of the CIT(A) and it was submitted that the assessee company has duly complied with the above provisions. It was submitted that as per the OECD transfer pricing guidelines if the tax payer presents a reasonable argument and evidence to suggest that its transfer pricing was the ALP, the burden of proof may legally and de facto shift to the tax administration to establish why the tax payer's transfer pricing was not at arms length. The CBDT circular No. 12 dated 23rd August, 2001 and circular No. 14 dated 22.11.2002 was also brought to the notice of the CIT(A) according to which ALP could not be disturbed unless the pricing is not based on the prescribed method or appropriate documents/ information has not been furnished within the prescribed timeframe and data for com....
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....CBDT instruction and the provisions of section 92C(3) and 92CA(3). He observed that in the instant case the TPO has not considered the various factors which require the adjustments in the industry margin calculated on the basis of the comparables of the assessee and it is not clear as to why the TPO did not reject the transfer pricing study submitted by the assessee and still went ahead making the transfer pricing adjustments in a summary manner. He also questioned the selection of various companies as comparables. Considering the operating profit/sales of the assessee at 3.56% which was higher than the industry margin he observed that the transactions between the assessee and its AEs were at arms length. Since the assessee in the instant case has selected the external comparables from the public data base and has followed a detailed search process and made an analysis considering the various factors or selecting the external comparables as required under the transfer pricing regulations and guidelines, he accepted the TP study of the assessee and ALP of international transaction determined on the basis of the same. He thus deleted the addition made by the Assessing Officer. 8. ....
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....is justified who abides by the OECD Transfer Pricing Guidelines and which has used TNM method. He submitted that the Assessing Officer failed to appreciate that internal comparables are more reliable as compared to external comparables. Referring to the fresh benchmarking, he submitted that the transactions entered into by the assessee with its AEs are at arms length. He submitted that the comparables chosen by the TPO cannot be applied to the assessee's case as most of them are either located in Seepz or had their jewellery manufacturing in Seepz since out of 18 comparable companies 13 are located in Seepz. He submitted that the Seepz units get a number of benefits which were pointed out before the CIT(A) and which are enumerated in the order of the CIT(A). As regards the remaining 5 entities located outside Seepz, two units viz., Deep Diamonds India Ltd. and Su-raj Diamonds and Jewellery Ltd., are not at all comparables. He submitted that for the financial year 2003-04 Deep Diamonds business comprises of domestic operations only whereas the assessee had export sales of 95% of total turnover. Further Deep Diamonds had a turnover of Rs.3.70 crores whereas the assessee has a turnove....
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.... We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee during the relevant assessment year has entered into international transactions with four AEs, the details of which are already given at para 3 of this order. We find the assessee in the instant case has adopted TNM method. We find the split financials provided by the assessee were rejected by the TPO on the ground that allocation of manufacture expenses like employees remuneration, rent, etc., the allocation key used is sales whereas according to the TPO the ideal allocation key in this case could have been - number of employees, space utilised, etc. We find while rejecting the method adopted by the assessee, the TPO conducted fresh search to find companies in the comparable business as that of the assessee. However, we find those comparables as selected by the TPO cannot be compared with that of the assessee. We find out of the 18 comparables 13 of them are situated in Seepz which cannot be comp....