TaxTMI 
TaxTMI 
2013 (8) TMI 421
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....essing Officer a sum of Rs. 60,96,704 was suo motu disallowed by the assessee, hence, net addition of Rs. 40,94,915 was made. The other disallowance is a sum of Rs. 13,73,781 which is with respect to disallowance of excess depreciation on computer peripherals, UPS and printers. The assessee had claimed depreciation at 60% As against that the Assessing Officer has allowed the claim at 15% and in the circumstances a net addition of Rs. 13,73,781 is made on that account. All these additions are agitated by the assessee in the present appeal. The grounds of appeal read as under : "Transfer pricing matters : On the facts and circumstances of the case, and in law ; 1. The learned Assessing Officer pursuant to the directions of the learned Dispute Resolution Panel ('learned DRP') erred in rejecting the approach adopted for transfer pricing analysis/contemporaneous documentation maintained by the appellant and thereby making a transfer pricing adjustment of Rs. 5,45,54,363 to the income of the appellant by holding that the international transactions of the 'manufacturing segment' and the 'marketing support services segment' of the appellant do not satisfy the ....
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....international transaction pertaining to import of raw material instead of sales figure of the manufacturing segment which resulted in an increase in the adjustment by Rs. 26,91,806. General grounds : 8. The learned Dispute Resolution Panel/Assessing Officer erred in not granting the benefit of +/5% range as envisaged by the proviso to section 92C(2) of the Act. 9. On the facts and in the circumstances of the case, the learned Assessing Officer erred in not appreciating the fact that additions made to the total income of the appellant are merely due to difference of opinion and not due to any mala fide intent on the part of the appellant, thereby initiating penalty proceedings under section 271(1)(c) of the Act on the premise that the appellant has concealed/ furnished inaccurate particulars of income. 10. The learned Dispute Resolution Panel erred in issuing directions which are incomplete with respect to : * Discussion on reasons for rejection of the appellant's contentions, evidence and factual and technical analyses ; * Discussion for distinguishing the case on hand from the various judicial precedents submitted in its support by the appellant ; and * Discussio....
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....ated September 30, 2010 has passed the order under section 144C(5) of the Act. 3. The transfer pricing study has been conducted by pricewaterhouse Coopers and copy of such study has been placed by the assessee in the paper book at pages 101 to 170. 4. The return of income has been filed by the assessee on November 27, 2006 declaring a loss of Rs. 52,33,133/-. Subsequently, a revised return was filed on March 31, 2008 in which an income of Rs. 79,75,972/- was declared and the assessment has finally come to be passed at an assessed income of Rs. 6,79,99,031/- after making the aforementioned three additions. 5. The assessee is engaged in the business of manufacturing, wholesale trading and installation of furniture and is also providing marketing services. It was incorporated in the year 1997 as a wholly owned subsidiary of Haworth Inc. to promote the sale of "Haworth" branded furniture to the Indian clients of "Haworth" group. It also provides marketing and related support services to "Haworth", Singapore. From December, 2005 the company has also commenced its manufacturing activities for assembly of chairs, at its newly set up plants in Hinjewadi, Pune. During the year the assess....
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....sfer Pricing Officer in table 2 are as under : TABLE 2 Sl. No. Particulars Manufacturing Segment Marketing Segment Total 1. Import of raw materials 5,93,36,409 5,93,36,409 2. Import of modular furniture 59,78,072 59,78,072 3. Import of display items and mock-ups 24,40,070 24,40,070 4. Import of fixed assets 1,40,82,082 1,40,82,082 5. Marketing & Installation services 15,39,33,769 15,39,33,769 6. Purchase of catalogues 7,89,028 7,89,028 7. Reimbursement of expenses (Paid) 31,76,157 31,76,157 8. Reimbursement of expenses (Received) 12,64,269 12,64,269 Total 5,93,36,409 17,72,23,021 24,09,99,856 Common 44,40,426 9. It was noticed by the TPO that the assessee has for manufacturing segment computed its margin after claiming an adjustment on account of capacity utilisation and preoperative expenses. He noticed that these adjustments were claimed by the assessee while computing the margin at 13.50% Adjustment on account of idle capacity has been made on the ground that manufacturing activity of the assessee had commenced in December, 2005. It is t....
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....tment made considering normal capacity of Haworth India Operating expenses from fixed costs = (Rs. 1126042 * 60.58%) i.e., Rs. 6,821,333 The details of pre-operative expenses are described in table 7 as below : TABLE 7 Particulars Amount (Rs.) Salaries & Wages 31,44,719 Fringe Benefits 19,93,198 Consulting 21,06,241 Maintenance 1,86,049 Supplies 1,64,571 Travelling costs 26,63,272 Telephone 5,46,689 Postage 81,438 Lease Rents 3,32,655 Training/Education 2,56,264 Legal Accounting 10,63,150 Advertising Fairs 91,060 Insurance 1,64,226 Other selling and general administration expenses 11,120 Total 1,28,04,653 11. Thus, it was found by the Transfer Pricing Officer that the assessee has based its calculation of margin which varied from the audited annual accounts of the assessee. For the following reasons, learned Transfer Pricing Officer has rejected the claim of the assessee regarding the adjustments to be granted to the assessee on account of capacity utilisation and preoperative expenses : "(a) It is seen that no preoperative expenditure has been shown in the profit and loss account. It is amply clear from this fact that the statutory auditors ha....
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.... by the Transfer Pricing Officer that as per the revised return filed for the year under consideration the earlier margin computed at 1.13% was revised and recomputed at 9.63% by taking into consideration the disallowed expenditures. He further found that out of 5 comparables submitted by the assessee current year data was available only with regard to two parties whose mean was worked out at (-)3.58% The names of the two companies in respect of whom current year data was available are Alfred Herbert India Ltd. and Priya International Ltd. The Transfer Pricing Officer noticed that Alfred Herbert India Ltd. is deriving income from sales, commission, current year profit on sale of investment. It was observed that no segmental information was available and, therefore, the learned Transfer Pricing Officer rejected the said comparable and he utilised only one comparable which is Priya International Ltd. whose mean margin on the basis of current financial year data is calculated at 22.58% and thus, it has been found by the Transfer Pricing Officer that there was a difference in the arm's length price of Rs. 3,71,50,369/-, which has been computed in table 11 which is described as belo....
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....ing made available in the transfer pricing report from where fact regarding capacity utilisation of comparables could be examined. Before the Transfer Pricing Officer only the assessee has submitted information in the case of M/s. Steel Age Industries Ltd. for which the capacity utilisation was taken at 50.72% by the assessee and as against that annual report had shown that the installed capacity of that company was much higher than the licensed capacity and the annual production was also higher than the licensed capacity. In this manner the data relating to that company was unreliable/not correct. 3. According to the settled law as per transfer pricing provisions contained in the Act, only a reasonable accurate adjustment from accurate and reliable data can only be made and as the assessee could not produced the details regarding accurate and reliable data from where reasonable accurate adjustment could be suggested and thus, the assessee cannot claim adjustment as it relates to capacity utilisation. Market support service segment : 1. The assessee's claim regarding suo motu disallowance of expenditures of Rs. 60,96,704/- in the revised return cannot be considered for wo....
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.... The claim of the assessee regarding depreciation at 60% in respect of printers, UPS, network routers is rightly restricted by the Assessing Officer at 15% as those equipments are not a necessary pre-requisite for running the computer. 18. In the aforementioned manner, the Dispute Resolution Panel has upheld the draft assessment order except deleting a disallowance of Rs. 11,440 made by the Assessing Officer on account of capital expenditure in respect of software. In pursuance of the directions of the Dispute Resolution Panel the learned Assessing Officer has framed the impugned assessment at an income of Rs. 6,79,99,031 against return loss of Rs. 52,33,133/- which was revised by a subsequent return declaring income at Rs. 79,75,972/-. Aggrieved by such order the assessee has filed the aforementioned grounds of appeal contesting all the additions made by the Assessing Officer in pursuance of directions of the Dispute Resolution Panel. 19. Both parties have argued the appeal at length and after conclusion of the hearing they have submitted the synopsis of their arguments and in this manner this appeal was heard. 20. After narrating the facts, first and foremost objection raised ....
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....he overall business of the said company was not functionally comparable with the assessee. It was submitted that before the Dispute Resolution Panel it was the case of the assessee that while computing the arm's length price, the assessee has taken into consideration only the segmental data of Alfred Herbert India Ltd. (sales and marketing operation) and, therefore, the said result was functionally comparable with the assessee and should have been considered for comparability analysis. With respect to consolidated segment, it was submitted that the subsidiaries are Indian companies and though the subsidiaries may be engaged in the manufacturing but the segment pertained to sales and marketing services was comparable despite being reported on a consolidated basis. He in this regard has relied upon the submissions made before the Dispute Resolution Panel vide letter dated January 7, 2010, copy of which is placed at pages 172 to 232 of the paper book and reference in this regard was made to the submissions contained at pages 208 to 210. 23. It was further submitted that only one comparable cannot be considered for application of the transactional net margin method and in that cir....
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....arable and a broader set of comparable should be looked at and for this purpose reliance was placed on the following decisions of the Tribunal : 1. M/s SAP Labs India P. Ltd. v. Asst. CIT [2010] 6 ITR (Trib) 81 (Bang) [I.T. A. No. 398/Bang/2008 and I. T. A. No. 418/Bang/2008] ; 2. Aztec Software and Technology Services Ltd. v. CIT [2007] 294 ITR (AT) 32 (Bang) [SB] ; 3. Mentor Graphics P. Ltd. v. Deputy CIT [2007] 112 TTJ (Delhi) 408 and 4. Sony India P. Ltd. v. Deputy CIT [2009] 315 ITR (AT) 150 (Delhi) (I. T. A. Nos. 1181/D/2005, 1656/Del/2007). 25. Coming to ground No. 5, it was submitted by learned counsel that the commencement of the manufacturing operation was an extension of an on-going business and thus, they were not required to be identified for reporting separately even as per requirements as per the Companies Act, 1956. These costs have been excluded merely for the purpose of comparability to obtained margins earned from international transactions and thus, they will not lose the character of pre-commencement expenses for the purpose of computing the operating margin for comparability purposes. Referring to rule 10B(1)(e)(i) it was submitted by the learned authoris....
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.... 47,814,197 Operating Profit Operating Profit/Sales 2,329,617 Margin of comparables as per TPO 4.65% Within +5% range 8.45% 27. The margin as computed by the Transfer Pricing Officer in respect of comparable is 8.45% and thus, the difference being less than 5% the benefit of the proviso to section 92C(2) is available to the assessee and thus, it was pleaded that international transaction relating to manufacturing segment should be considered to be at the arm's length price. 28. Coming to ground No. 6 which relates to adjustment on account of capacity utilisation, it was submitted that all the details were submitted by the assessee regarding the startup stage of operations and capacity utilisation details viz-a-viz the details with regard to comparables and also the legal pronouncement in favour of the assessee and reference in this regard was made to pages 264 to 298 and pages 245 to 247 of the paper book. He submitted that neither the Transfer Pricing Officer nor the Dispute Resolution Panel has contested difference between the stage of operations of the assessee and the comparable. They have rejected the entire adjustment based only on account of the presum....
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....t to the comparable which is enclosed as Annexure "D". It was submitted that arithmetic mean of OP/sales of the comparables after such adjustment is (-) 7%, vis-a-vis the margin of the assessee from the international transaction of 4.65% which clearly demonstrate that the arm's length nature of the transaction relating to manufacturing segment, which stands thus irrespective of the approach. 30. Coming to ground No. 7, it was argued that the Transfer Pricing Officer has applied the profit level indicator of OP/sales to the value of the international transaction (which is import of raw material) rather than to sales of the manufacturing segment of the assessee and, thus, the learned Transfer Pricing Officer has computed the operating margin of the comparables on sales and applied the operating margin on the assessee's purchases. Thus, it was submitted that there is a fundamental difference in the calculation of mean margin. He submitted that the correct computation in this respect, if the same criteria is adopted, will be as under : Sl. No. Particulars Amount (Rs.) 1. Sales 50,143,814 2. OP/Sales as calculated by the Ld. TPO 8.45% 3. OP considering the above OP/S....
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..... Deputy CIT [2008] 115 TTJ (Kol) 577 : Para 22 "The assessee computed the arm's length price considering the 5% tolerance range. The results of such computation are given below." Para 25 "we conclude DCIL should retain the gross margins as determined through the benchmarking exercise by the assessee discussed earlier in this order." (c) Sony India P. Ltd. v. Deputy CIT [2009] 315 ITR (AT) 150 (Delhi) (I. T. A. Nos. 1181/Del/2005, 1257/Del/2007 and 1656/Del/ 2007) : Para 163 "Option is given to the taxpayer as in some cases, variation not exceeding 5% of arithmetic mean might not suit the taxpayer, and, therefore, taxpayer in such cases should not be put to a prejudice. Otherwise, there is no difference between the first and the second limb of the provision as far as right of the taxpayer to challenge the determined price is concerned. The second limb only allows marginal relief to the taxpayer at his option to take the arm's length price not exceeding 5% of the arithmetic mean. Therefore, in line with the view taken by the Kolkata Bench of the Tribunal, we are of the view that benefit of the second limb is available to all taxpayers irrespective of the fact t....
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....order that the Dispute Resolution Panel failed to consider or appreciate various submissions, evidences and documents placed before it and finally regarding the user of current year financial data as against multiple year data prescribed under rule 10B(4) of the Income-tax Rules, 1962. He submitted that at appropriate places the discussion on these issues have already been made, hence, these grounds may be decided accordingly. 35. Coming to ground No. 12, it was submitted by learned authorised representative that the assessee made provisions of Rs. 40,94,915/-. The assessee had booked the actual expenditure of Rs. 33,24,274/- in the next financial year, i.e., the financial year 2006-07. Such provision to the extent not booked against the actual expenditure in the financial year 2006-07 was reversed in the next year and, in this manner, excess provision was offered to tax in the next year. He submitted that the provision as on March 31, 2006 was actually a sum of Rs. 47,40,969/-and, on the basis of actual expenditure, an amount of Rs. 14,16,695/- was reversed in the financial year 2006-07 and he described the following table : Provision as on March 31, 2006 (disallowed amount 4,7....
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....tion, but in the present case the assessee has not demonstrated that commission expenditure disallowed in the return of income was considered as part of operating expenses in the transfer pricing analysis. Therefore, he pleaded that to verify such fact, the matter may be sent back to the file of the Assessing Officer/Transfer Pricing Officer. 41. In respect of ground No. 3, he submitted that this ground is interrelated to ground No. 2 and the said amount has already been surrendered for taxation and, therefore, it does not call for adjudication. 42. In respect of ground No. 4, he submitted that this issue has been discussed by the Transfer Pricing Officer in paragraph 5. He submitted that the assessee has considered five companies as comparables in the transfer pricing study report considering multiple year data. The Transfer Pricing Officer adopted current year data on the basis of which he rejected three out of five comparables. He submitted that the current year data for the said three comparables was not even available before the Dispute Resolution Panel and the said data is not available even as on date. He submitted that the Transfer Pricing Officer has not disturbed the as....
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....said fresh search cannot be considered. He submitted that following case law support the case of the Revenue that even one comparable is good enough to compute the arm's length price : (i) In the case of Vedaris Technology P. Ltd. v. Asst. CIT (I. T. A. No. 4372 (Del)/2009) reported as [2009] 131 TTJ (Delhi) 309 the arm's length price had been determined considering only one comparable. This case is on transactional net margin method. The para relied upon by the authorised representative is of no help to the assessee as the decision is taken by the Tribunal on merits and not on concession. (ii) In the case of Perot Systems TSI (India) Ltd. v. Deputy CIT (I.T.A. Nos. 2320, 2321 and 2322/Del/2008) reported as [2010] 5 ITR (Trib) 106 (Delhi) ; 2010-TIOL-51-ITAT-DEL-TP wherein the arm's length price had been determined considering only one comparable. This decision was further relied upon by the Income-tax Appellate Tribunal in the case of UE Trade Corporation (India) P. Ltd. [2011] 9 ITR (Trib) 400 (Delhi) available in the case law compilation submitted by the authorised representative for the assessee at pages 302-317 of compendium of case law (reported at 2011-TII-04....
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....sessee has relied upon paragraph 14 of the Income-tax Appellate Tribunal's order. He submitted that whole of the paragraph should be read and it will show that adjustments are to be made to the comparables and not to the tested party and such position was upheld by the Income-tax Appellate Tribunal. Distinguishing the decisions in the case of Asst. CIT v. Fiat India P. Ltd. and Skoda Auto India P. Ltd., he submitted that they were given in the context of capital intensive industries, hence, could not be applied to the case of the assessee. 48. It was further submitted that one can visit to OECD guidelines only when the provisions of the Income-tax Act or Rules are not clear and, in the present case, the law being clear and the adjustment being not in accordance with the law, the claim of the assessee should be rejected. He submitted that as pointed out by the Dispute Resolution Panel and the Transfer Pricing Officer, the data considered for capacity utilisation of one of the comparables, namely, M/s. Steel Age Industries Ltd. was not reliable, hence, adjustment on that account was rightly rejected. He submitted that since the assessee bears the capacity utilisation risk as men....
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....ghtly computed the adjustment in the manufacturing segment taking the value of international transactions reported in Form 3CEB and it is for the assessee to argue that this could possibly lead to anomaly in the subsequent year when the unused inventory enters the profit and loss statement and transactional net margin method is used for determining the arm's length price. This may require suitable adjustment when the arm's length price is determined in the next year. This would be a matter of details and can be left to be decided in the next year if such a situation arises. 51. Apropos ground No. 8, it was submitted by the learned Departmental representative that in the case of Global Vantedge P. Ltd. v. Deputy CIT [2010] 1 ITR (Trib) 326 (Delhi) ; 37 SOT 1, it has been held that it is not a standard deduction. He submitted that for marketing support segment only one comparable was selected, therefore, since only one the arm's length price was selected, there is no question of analysing the variation from the transfer price of the international transaction as the proviso clearly mentions "where more than one price is determined by the most appropriate method" and such ....
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....ice and transfer price does not exceed 5% of the transfer price. He submitted that for the reason aforesaid, the claim of the assessee regarding +/- 5% as standard deduction has rightly been denied by the Transfer Pricing Officer. 56. Apropos ground No. 11, it was submitted that current year data is only the relevant data as per rule 10B(4) and such issue has been set at rest by the decision of the Appellate Tribunal in the case of Customer Services India P. Ltd. v. Asst. CIT [2009] 30 SOT 486 (Delhi) wherein it has been held as under : "It was mandatory on the part of the Transfer Pricing Officer to use the assessee data relating to the financial year 2002-03 in which the international transactions were admittedly entered into by the assessee company with its associated enterprises." 57. He submitted that as per well settled law, single year data has to be considered unless the assessee demonstrates that prior years' data has had an influence on the setting of transfer price of international transaction either at the time of setting them or by way of adjusting them subsequent to entering into the international transaction to align them to the arm's length price. This i....
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....shed by the statistics placed as annexure A. He submitted that as per annexure B, the set of comparables selected by the Transfer Pricing Officer for the financial year 2006-07 during the assessments, current year data was not available for any of the comparable companies in the public domain at the time of statutory time line to file the returns and such fact prove that it is impossible for the tax payer to use current year data while preparing the contemporaneous documents. He submitted that while deciding the issue regarding user of multiple year data the submissions of the assessee made before the Dispute Resolution Panel vide pages 211-215 of the paper book should be considered. 60. So far as it relates to the contention of the learned Departmental representative that one comparable is sufficient to determine the arm's length price, he submitted that it has never been the case of the assessee that any of the comparables selected by it should be rejected. In fact, the assessee has selected and all throughout distinguished the set of comparables selected in its transfer pricing study report and it is the request of the assessee that whole set of comparables should be accept....
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.... in the light of material placed before us. Firstly we take the grievance of the assessee as represented in ground Nos. 2 to 4 relating to adjustment made with regard to marketing support services segment. The first and foremost objection of the assessee is regarding non-reduction of suo motu disallowance of commission expenses of Rs. 1,32,09,105 from operating expenses for the purpose of transfer pricing analysis. It has been the case of the assessee that on March 31, 2008 it has electronically filed the revise return vide which a sum of Rs. 1,32,09,105 was added to the earlier returned income on account of "commission paid to DSF added back". Copy of such revised return is placed at pages 1 to 5 of the paper book according to which taxable income of the assessee has been computed at Rs. 79,75,972 as against earlier returned loss of Rs. 52,33,133. Copy of original return file is placed at pages 6 to 30 of the paper book. It has also been the submission of the assessee before the Dispute Resolution Panel that the Transfer Pricing Officer has erroneously computed the arm's length price pertaining to market support services of the assessee as he did not take into consideration th....
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.... while considering this issue has mistakenly written the amount as Rs. 60,96,704 and this position has been clarified by the learned authorised representative in his written submissions in paragraph 5.3.2 as the said sum of Rs. 60,96,704 relates to ground No. 12 in connection with a corporate tax ground. So the sum as stated in the Dispute Resolution Panel's order at page 2 in paragraph 1(b) is relating to the claim of the assessee of Rs. 1,32,09,105 instead of Rs. 60,96,704. 65. Thus, it can be seen that the contention of the assessee has been rejected by the Dispute Resolution Panel without properly appreciating the case of the assessee. It is the case of the assessee that the Transfer Pricing Officer has wrongly computed the margin of the assessee at 1.35% and if the said sum of Rs. 1,32,09,105 is taken into consideration then the profit margin will be 9.63% and such computation has been shown in the following table 1 annexed with the written arguments : Table 1 : Computation of operating margins for marketing support services segment Amount in Rs. Particulars Reference Without disallowance as per TPO Considering disallowance as per revised computation by appellant C....
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....ttled law, as explained in various decisions of the Tribunal, only current year financial data is relevant for determination of the arm's length price and this position of law is well settled by the following decisions of the Tribunal : 1. Aztec Software and Technology Services Ltd. v. CIT [2007] 294 ITR (AT) 32 (Bang) ; 2. Mentor GraphicsA (Noida) P. Ltd. v. Deputy CIT [2007] 109 ITD 101 (Delhi) ; and 3. Customer Services India P.A Ltd. v. Asst. CIT [2009] 30 SOT 486 (Delhi). 68. Moreover, rule 10B(4) regulates such position of law which reads as under : "10(4). The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into : Provided that data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared." Thus, sub-rule (4) of rule 10B clearly states that the data to be used in analysing the comparability of an uncontroll....
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....said concern is filed by the assessee in the paper book at pages 345 to 397 and at page 375 the following functions of the said concern are described as primary segment : 1. Manufacturing operations. 2. Sales and marketing operations. 3. Reality business services. 4. Others. The Revenue earned by the said concern from these activities as described in the report is Rs. 1,670.13 lakhs, Rs. 18.78 lakhs, Rs. 42.79 lakhs and Rs. 917.15 lakhs, respectfully for the financial year ending on March 31, 2006. Thus, it can be seen that the revenue of the said concern from sales and marketing operations is only a sum of Rs. 18.78 lakhs against the gross revenue of Rs. 2,648.85 lakhs. To select a comparable, according to well recognised principle, it should also be functionally comparable. A company which is mainly dealing in other segments cannot be accepted as functionally comparable. It can be seen from the above figures that the said concern had dealt with in the segment of sales and marketing operations at a very minimum level of total revenue and on a simple turnover of Rs. 18.78 lakhs it has shown loss of Rs. 7.59 lakhs which means that it has incurred loss of 40.41% from the rel....
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....ion of the Tribunal upon which the assessee has placed reliance read as follow : "81. The argument of the assessee-company cannot be accepted as such, for various reasons. First of all, the comparables available in the revised list of the Transfer Pricing Officer/Assessing Officer are only three. Three comparables are not a reliable sample size." From the above observations it does not appear that a principle of law has been laid down that in case one comparable remains, the entire exercise would fail. 73. Similarly in the case of Aztec Software and Technology Services Ltd. v. CIT [2007] 294 ITR (AT) 32 (Bang) it was observed that the sample size of data taken by the tax payer, to support the arm's length price was too small to come to any general conclusion. 74. In the case of Mentor Graphics P. Ltd. [2007] 112 TTJ 408 (Delhi) also it has not been laid down that if only one comparable is left, the entire exercise was to be done again. 75. In the case of SAP Labs India P. Ltd. v. Asst. CIT [2010] 6 ITR (Trib) 81 (Bang), it was observed that even as per OECD guidelines large number of similar entities should be taken to make comparison broad based. 76. In none of these ca....
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....ance 1,64,226 Other selling and general administration expenses 11,120 Total 1,28,04,653 80. To support the contention that manufacturing operation was started only in the month of December, 2005 the assessee has placed reliance on the certificate issued by the Central excise authorities dated May 30, 2005 vide which the assessee had sought registration as manufacturer of excisable goods at Hinjewadi, Pune and the related returns which were filed in the month of December, 2005 and copies of these documents are filed at pages 263 to 298 of the paper book. It may not be a matter of doubt that the assessee has commenced its manufacturing operation in December, 2005 but the question is that whether or not the assessee is entitled to exclude the aforementioned expenses from operational expenses on the ground that manufacturing activities were started only in December, 2005 despite the fact that those very expenses were relating to manufacturing activity of the assessee. 81. The assessee to support its contention that those expenses are required to be excluded from operational expenses has mainly relied upon the provisions of rule 10B(1)(e)(i). Taking support from the above argume....
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....rgin which has been realised. In the case of the tested party (the assessee), it is not permissible to deviate from the book results on the ground of capacity utilisation. The adjustment on account of capacity utilisation, if any, is permissible by rule 10B(3)(ii), rule 10B(3) read as under : "(3) An uncontrolled transaction shall be comparable to an international transaction if (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market ; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 85. Therefore, it is clear that in the case of the tested party (the assessee), there cannot be any deviation in the net profit shown in the books of account and adjustment, if any, can be made to the same to eliminate the material effects of such differences to the extent these adjustments are reasonably accurate. Therefore, the position emerges is that the adjustments can be granted to the assessee in computation of the mea....
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....ents are needed to be made to the cost considered for arriving at the profitability of the transaction as expenditure incurred for pre-commencement period was needed to be adjusted. Under utilised capacity has been computed considering only the relevant part of the year, i.e., after the commencement of the business. The Dispute Resolution Panel has observed that no evidence has been made available in the transfer pricing report to examine the capacity utilisation of the comparables and the data relied upon by the assessee for seeking such adjustment is unreliable and incorrect. Before us it was submitted that all the details regarding start up stage of operations and capacity utilisation details of the assessee viz-a-viz the comparables were filed and reference in this regard is made to pages 264 to 298 and submissions at pages 245 to 247 of the paper book. It was submitted that the Transfer Pricing Officer/Dispute Resolution Panel has nowhere contested difference between the stage of the operation of the assessee and the comparables reference in this regard is made to pages 405 to 408 and 414 to 436. It was submitted that the Transfer Pricing Officer and the Dispute Resolution Pan....
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....omparables. No credible information has been submitted by the assessee to seek adjustment on account of capacity utilisation and we hold that the case law relied upon by the learned authorised representative in this regard have no relevance as on facts of this case and it is held that the assessee has not been able to furnish credible and accurate information with regard to capacity utilisation and such adjustment can be allowed only in a case where the assessee is able to furnish accurate and credible evidence in this regard. Therefore, the decisions in the following cases cannot be relied upon to give relief to the assessee. 1. Asst. CIT v. Fiat India P. Ltd. 2010-TII-30-ITAT-MUM-TP (the hon'ble Mumbai Tribunal I. T. A. No. 1848/Mum/2009) ; 2. Skoda Auto India P. Ltd. (the hon'ble Pune Tribunal ([2009] 122 TTJ (Pune) 699) ; 3. E-Gain Communication P. Ltd. v. ITO (the hon'ble Pune Tribunal ([2008] 118 TTJ (Pune) 354) ; and 4. Global Vantedge P. Ltd. v. Deputy CIT [2010] 1 ITR (Trib) 326 (Delhi) (the hon'ble Delhi Tribunal (I. T. A. Nos. 2763 and 2764/Del/2009)). Accordingly, ground No. 6 is dismissed. 91. Now coming to ground No. 7, it is the case of the ....
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....assessee with respect to marketing support service segment. In respect of the manufacturing segment more than one prices is determined by most appropriate method by taking into account five comparables which have been accepted by the Transfer Pricing Officer and they have been listed in table 3 of his order. Therefore, for the said segment the adjustment of 5% is available at the option of the assessee irrespective of the fact that the arm's length price determined by the Transfer Pricing Officer exceeds 5% or not and so has been held by the co-ordinate Bench in the case of Sony India P. Ltd. v. Deputy CIT [2009] 315 ITR (AT) 150 (Delhi) and in the case of SAP Labs India P. Ltd. v. Asst. CIT [2010] 6 ITR (Trib) 81 (Bang). This issue has been discussed in detail in the decision of Sony India P. Ltd. v. Deputy CIT [2009] 315 ITR (AT) 150 (Delhi) in paragraphs 235 to 248 and it has been categorically held that benefit of 5% is available at the option of the assessee, even in a case where the arm's length price has been determined exceeding 5% and the assessee does not give up its right to contest the remaining addition which is in excess of 5% margin and it will be relevant to....
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....rovision only to marginal cases where price disclosed by the taxpayer does not exceed 5% of the arithmetic mean. In our considered opinion, the arm's length price determined on application of the most appropriate method is only an approximation and is not a scientific evaluation. Therefore, the Legislature thought it proper to allow marginal benefit to cases who opt for such benefit. In the case of a taxpayer who exercises the option and accepts the arm's length price as per the second limb of the proviso or in other words, he accepts the arm's length price even exceeding 5% of arithmetic mean determined by the tax authority as correct and is ready to pay tax on the difference between price disclosed by him and the above arm's length price. We do not see any valid objection on the part of the Revenue to the application of the above provision to such a case. The taxpayer has exercised the option and took the arm's length price as per the second limb as the final price without raising any dispute. Therefore, the parameters laid down as per the second limb are fully satisfied. In our opinion, the legal position cannot be different in a case where minor variation of....
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....s the contentions of the assessee have been rejected without appropriate reasons. We have discussed each and every issue in detail and wherever we found that the issue has not been properly dealt with by the Departmental authorities, we have directed them to reconsider the same. Therefore, this ground does not need to be adjudicated separately. 97. Ground No. 11 has already been discussed and it has been held that only data of relevant financial year is relevant and hence this ground of the assessee is dismissed. 98. Apropos ground No. 12 the assessee in its original return had claimed provision for certain expenses at a sum of Rs. 1,01,91,619 the details of which are as under : The assessee has made provisions for the expenses as follows : (a) Prototype cost Rs. 3,39,072 (b) Promotional material Rs. 4,501 (c) Display Material Rs. 20,27,746 (d) Promotional Programmes Rs. 20,75,024 (e) Public relation Rs. 2,94,626 (f) Member procurement Rs. 2,20,023 (g) Legal & Accounting Rs. 16,26,520 (h) Professional fee Rs. 24,89,733 (i) Consultancy Rs. 16,09,000 Total Rs. 1,01,91,619 99. Later on, on account of applicability of section 40(a)(ia), inter a....