TaxTMI 
TaxTMI 
TaxTMI 
2012 (10) TMI 404
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....ratio should be applied to the sale turnover corresponding to the purchases made from Associated Enterprises and not to the total turnover. 4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the wording net profit margin for Rule 10B, necessarily means only the net profit determined after allowance of cost inclusive of interest cost and consequently holding that taking operating profit as base for benchmarking as considered by the Transfer Pricing Officer is not in tune of Rule 10B of Income tax Rules. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the 'capital base' materially affect the operating profit, ignoring the findings of the Transfer pricing Officer that during the proceedings, the assessee could not demonstrate that the diamond industry is a capital intensive industry. 6. On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in holding that seven comparable entities selected by the Transfer Pricing Officer do not appear to be comparable with the assessee. 7. On the facts and in the circum....
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....of the TPO. It is observed by the TPO that since assessee's margin did not fall within safe harbour of +/- 5% the assessee was required to explain as to why TP adjustment should not be made. The assessee inter- alia submitted that the working capital was only Rs. 36.92 lacs as against the total capital of some of the entities sought to be compared of Rs. 102.72 crores; outstanding creditors constitute 134 days to the purchases as against only 103 days for some of the comparables; outstanding debtors constitute only 46 days of the sales as against 110 days of the comparables; sale of the assessee to capital ratio i.e. capital turnover ratio is about 158 times as against just 1.83 times of some of the comparables etc. Ld. TPO rejected all the these submissions of the assessee stating inter-alia that diamond is not a capital intensive industry; the assessee did not incur interest cost while comparables have incurred and the margin of the comparables have been worked out after excluding the interest cost; the assessee did not furnish any price comparison data on an invoice to invoice basis etc. The TPO calculated an addition of Rs. 2.58 crores vide para 12 of his order as under: "12. ....
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....see's transaction is at Arm's Length as it is within safe harbour of +/-5%. M/S Super Diamonds Bifurcations Actual AE Non-AE Operating cost 578,084,572 161,973,522 416,111,050 Operating Profit 4,293,419 1,202,970 3,090,439 Sale 582,377,981 163,176,492 419,201,489 Operating profit to sales as per TPO 5.13% Sale price of purchase from AE 163,176,492 Less: Operating profit @5.13% 8,370,954 Operating cost i.e. purchase price at ALP 154,805,538 105% of ALP 162,545,815 Actual price 161,973,522 As actual price is less than ALP as adjusted by 5%, No adjustment is required. From the aforementioned chart it was noticed that the operating cost shown by the assessee with its AE did not include operational cost, while treating the sale operational profit was taken into con....
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....unds of appeal, which has been reproduced above, it is the case of the Ld. D.R that Ld. CIT(A) has wrongly deleted the addition. So far as it relates to calculations in the aforementioned chart, it was pleaded by Ld. D.R that to verify the calculation the matter may be restored back to the file of A.O. 6. As against that referring to the aforementioned chart it is the case of the Ld. AR that without prejudice to the other submissions of the assessee, if margin taken by TPO is applied, even then the assessee's case will fall within the safe harbour of +/- 5%. He, therefore, submitted that the TPO has wrongly taken into consideration the entire sale of the assessee, whereas according to the provision ALP can be applied only to international transactions of the assessee with its AE and if this fact is accepted then according to aforementioned chart, there being safe harbour of +/- 5% available to the assessee, no adjustment is required to be made and on this ground the order of the Ld. CIT(A) be upheld. 7. We have carefully considered the rival submissions in the light of the material placed before us. So far as it relates to application of CUP method, it is the case of Ld. CIT(A) t....