TaxTMI 
TaxTMI 
2010 (10) TMI 740
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....1 without appreciating the facts that the said amount did not form part of export turnover for the assessment year under question as defined in clause (b) of Explanation below subsection (4C) of section 80HHC of the Income-tax Act, 1961. 2. The facts of the case are given in the order of the CIT (Appeals) at paras 1.2, 1.3 which are extracted below for ready reference:- "1.2 The appellant firm was engaged in the business of import of rough diamonds, manufacture and export of cut and polished diamonds. During the year under consideration, the Assessing Officer had made reference under section 92CA(1) for determination of Arm's Length Price (ALP) to Transfer Pricing Officer for the international trading transaction with its associated enterprises viz. Simplex Diam NV located at Belgium and Vaishali Diamond Corporation at USA. The Addl. CIT (TP-1), Mumbai vide his order under section 92CA(3) passed on 28-3-2005 worked out the enhancement of total income by Rs. 1,25,39,782 on account of adjustment to the value of international transaction entered into by the appellant. 1.3 During the assessment proceeding, the Assessing Officer received the aforesaid order....
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....ason that in this line of business, comparisons of margins of class of transaction level is not possible. 6. Joining the issue the learned DR submitted that the law laid down has be followed and it would be incorrect to hold that if the assessee, as well as the Assessing Officer agree not to follow the statute, then the Tribunal should not draw their attention to the Act. 7. Rival contentions heard. This Bench of the Tribunal in the case of Twinkle Diamond (supra) held as under:- "5. Rival contentions heard. On careful consideration and circumstances of the case, perusal of the papers on record and orders of the authorities below as well as case laws cited, we hold as follows:- The assessee has adopted cost plus method for computing ALP of the international transactions. The TPO for various reasons cited in his order held that cost plus method is not the most appropriate method. This finding is not challenged by the assessee and, hence, we have to only consider whether the Transaction Net Margin Method (TNMM) adopted by the TPO, and the manner the same is applied, is correct or not. Both, TPO as well as the assessee in our humble opinion have....
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.... in the Act as well as in the Rules, show that it is mandatory for the assessee, to follow one of the prescribed method and demonstrate that the international transactions, entered into by it, with an associated enterprise, are at Arm's Length Price, and such exercises are only with reference to a transaction or a class of transactions. 12. Coming to the computation of ALP, the TPO, as well as by the assessee, have adopted enterprises level operating margins, as TNMM for the purpose of comparison. In our considered opinion, Transactions Net Margin Method (TNMM) does not permit the assessee or the Assessing Officer, to compare enterprise level profits and make adjustments under Chapter-X. This Bench of the Tribunal in ITA No. 5034/Mum./07 dated 15-2-2010, 'L' Bench in the case of Addl. CIT v. M/s. Tej Diam at paragraph 6 onwards held as follows:- 6. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below, we hold as follows. 7. The following definitions are extracted for ready reference:- Section 92F(ii) arm's length price:- &nb....
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....) deals with Transactions Net Margin Method (TNMM) and it refers to only net profit margin realised by an enterprise from an international transaction or a class of such transaction, but not operational margins of enterprises as a whole. 6. In view of the above discussion, we are unable to sustain, computation of ALP done by the TPO. In our humble view interest unnecessary to go into various issues raised by the assessee as well as the Assessing Officer on this issue, for the reasons that the very method of applying TNMM is wrong. The assessee has not taken the ground that cost plus method is the most appropriate method and the TPO has struck down this method as inappropriate. Under the facts and circumstances of the case, we have no other alternative but to set aside the entire issues to the file of the Assessing Officer for fresh adjudication in view of the peculiar circumstances of this case, we permit the assessee to file yet another report contemplated under section 92E of the Act and also support its ALP under any other method by relying on fresh comparables and documents. With these observations, we set aside the matter to the file of the Assessing Office....