TaxTMI 
TaxTMI 
2013 (1) TMI 16
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....on claimed under Section 10B, by such amount and included it as income under the head "income from other sources" rightly. 4. Facts apropos are that assessee had filed its return of income for the impugned assessment year on 19.10.2007 declaring an income of Rs. 35,93,390/-. Assessee was engaged in sale and export of pasteurized crab meat. During the course of assessment proceedings, it was noted by the Assessing Officer that assessee had entered in international transactions with its Associate Enterprise for a sum exceeding Rs. 15 Crores. Assessing Officer referred it to Transfer Pricing Officer (TPO) for determination of the arm's length price. 5. TPO vide his order dated 2.7.2010 fixed the arm's length price of the sales effected by the assessee to its Associate Enterprise at Rs. 18,79,25,631/-. Sale price shown in the books by the assessee, for its sales to the Associate Enterprise was Rs. 24,32,24,499/-. In other words, the profit level indicated by the assessee was much higher than the one determined by the TPO based on comparables. Net margin indicated by the assessee was 44.08%, whereas, the one determined by the TPO was 21.66%. Assessing Officer was of the opinion that r....
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.... sale value it would result in the income of the assessee getting reduced. Therefore, Section 92(3) of the Act squarely applied. According to him, TPO herself did not propose any adjustment. He. therefore, held that addition was not warranted and deleted the addition made by the A.O. 9. Before us, learned D.R. strongly assailing the order of CIT(Appeals), reiterated the grounds taken in the appeal filed by the Revenue. According to him, the addition was made relying on Section 10B(7) read along with Section 80-IA(8) and 80-IA(10) and this was nothing but a type of adjustment carried out to arm's length price. Assessee had shown excessive receipt for the sales effected to its Associate Enterprise and thereby claimed excessive deduction under Section 10B of the Act. A.O. had rightly considered such excess amount as "income from other sources". 10. Per contra, learned A.R. supported the order of CIT(Appeals). 11. We have perused the orders and heard the rival submissions. Assessing Officer had, during the course of assessment proceedings, made a reference to TPO for determination of arm's length price for the international transactions entered by the assessee with its Associate Ent....
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....e copy of the ledger account of the Associate Enterprise and the statement showing the list of sales invoices raised on AE during the year and the amount shown as export sales in the P & L account (being 100% exports made to AE only) it is ascertained that the value shown in the Form 3CEB indicates the ledger balances and not the value of sales transaction entered with the AE during the year and that the value of export made to AE during the year is Rs. 24,32,25,499/-only. 7. Since the arithmetic mean of the PLI of the comparable companies as stated by the assessee company itself vide Appendix 10.5 of its TP document is 21.66% as against its own PLI of 44.08% the arm's length price of the value of export of pasteurized crab meat to its AE is worked out at Rs. 18,79,25,631/- as per the calculations given below:- Sales Rs. 24,35,71,076/- Less: Selling Expenses (Rs. 24,63,247/-) Add: Change in stock Rs. 15,72,254/- Total Sales of the assessee Company (A) Rs. 24,26,80,083/- Arithmetic Mean of PLI of comparable companies given by assessee company i.e. % of Gross Margin on sales 21.66% PLI of Assessee Com....
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.... reduction in income is not possible:- "92(3) The provisions of this section shall not apply in a case where the computation of income under sub-section (1) or the determination of the allowance for any expense or interest under that sub-section, or the determination of any cost or expense allocated or apportioned, or, as the case may be, contributed under sub-section (2), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into." 13. A determination of arm's length price if it has the effect of reducing the income chargeable to tax or increasing the loss as the case may be, has to be ignored on an application of Section 92(3). There being no recommendation by the TPO for any revision in the arm's length price, we are of the opinion that A.O. was not at all required to make any adjustment in the arm's length price. Coming to the aspect whether a part of the receipt on account of sales effected to Associate Enterprise could be considered under the head "Income from other sources", we are afr....
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....n the assessee carrying on the eligible business with another person the business between them is so arranged so that as a result of the business transacted between the eligible person and other person, the profit of the eligible person is inflated so as to claim the exemption provided, then the AO, while computing the profits and gains of the eligible business for the purpose of granting deduction can readjust the amount of profit as would reasonably be derived from such eligible business. Here, in the present case the TPO has categorically given a finding that the income of the assessee is at the arm's length. One must keep in mind that the intention of transfer pricing is also on similar lines as s. 80-IA(10) insofar as under the provisions of transfer pricing it is to verify as to whether the local AE is getting its right share of revenue and as per s. 80-IA(10), it is to verify and adjust the profits of an eligible business so that under the garb of the eligible business the taxable income of an AE is not reduced by shifting its income to the eligible business. However, he has given a further fact in his order that the profit level indicator of the assessee is higher than the ....
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....he errors have been corrected and the fresh calculation given. This calculation is also not a calculation for determining the ordinary profits which the assessee might be expected to generate. The AO would be expected to use a comparable case to determine the possible ordinary profit which the assessee could be expected to generate from his business. In the absence of any other substantial evidence available with him, when using a comparable, the assessee's own past and future performance would obviously be the best comparable. Comparing the assessee's modus operandi of conducting its business with another when the same are not of equal terms would be a travesty of justice insofar as the financial charges, the use of the plant and machinery, the depreciation thereon, the location which would affect the cost of transportation as also the cost of the labour, cost of power and fuel would have to be seen. These are but only some factors which would affect the comparability when comparing two different enterprises. M/s Rahul Electricals & Electronics which has a turnover of only Rs. 1.28 crores, obviously cannot be compared with the assessee which has the turnover of more than Rs. 15.06....