TaxTMI 
TaxTMI 
2013 (9) TMI 336
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.... In the said return, dividend income of Rs.3,17,224/- received on mutual fund units was claimed to be exempt by the assessee u/s 10(38) of the Act. No disallowance on account of expenses incurred in relation to the earning of the said income, however, was made by the assessee as required by the provisions of section 14A. The AO, therefore, worked out such expenses at Rs.1,45,192/- by applying Rule 8D and made a disallowance to that extent u/s 14A. On appeal, the learned CIT(Appeals) confirmed the said disallowance relying on the decision of Special Bench of ITAT in the case of ITO v. Daga Capital Management (P.) Ltd. [2009] 117 ITD 169 (Mum.)(S.B.) wherein it was held that Rule 8D has a retrospective application. 4. We have considered the arguments of both the sides and also perused the relevant material on record. As agreed by the learned representatives of both the sides, the issue involved in this appeal now stands squarely covered by the decision of Hon'ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. (2010) 234 CTR (Bom) 1,, wherein it has been held that Rule 8D of Income-tax Rules, 1962 is applicable only from assessment year 2007-08. As further hel....
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....e also held that the price of bathrobe was likely to be varied depending upon the size, sheds, fabric, design, style etc. He was also of the opinion that there was no point in comparing the average price of bathrobe supplied by the assessee to AEs in Italy with the average price of bathrobes supplied to Wall Mart in USA as the average price was dependant on the type and quality of bathrobes which varied in wide range. He held that the CUP method used by the assessee for benchmarking the international transactions with AEs thus was not the most appropriate method and the TNMM should be considered as the most appropriate method for the benchmarking. Accordingly, a search was undertaken by the TPO under the industry head "Textiles - Terry Towels" and he identified 11 companies as comparables being broadly similar functionally to the assessee. Since the average rate of net profit to total cost of the said comparables was found to be 13.05% as against 5.04% shown by the assessee, the assessee was called upon by the TPO to explain why TP adjustment should not be made in its case by applying arms length margin of 13.05%. In reply, the assessee primarily objected to the use of TNMM as the ....
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....se was worlds largest retail departmental chain of "Wal Mart". (iii) The CUP method was stated to be most appropriate as the appellant has exported the same product albeit having slightly different construction/characteristics of almost same volume to the AE as well as to the Non AE under the said condition. (iv) The TPO proceeded with application of TNMM method and close companies that are engaged in the manufacturing of 'terry towels'. In fact, terry towels are akin to the raw material for the manufacture of bathrobe. The costs and the expenditure cannot be compared as almost all the manufactures of terry towels convert cotton yarn into fabric and hence their risks and rewards are entirely different from that of the assessee company. The manufacturing process of terry towel manufacturing verticals (cotton spinning, weaving, dyeing & processing, cutting, slitting, hemming and packaging), are entirely different from the simple stitching process required for a bathrobe manufacturing unit. Thus the technology requirements, the capex requirements and the technical manpower requirements are all significantly higher than that requi....
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....ort benefits should be considered as part of total sales. It was submitted that incidentally the AO has considered the database of Welspun India Ltd. which holding around 50% shares in the Appellant company. The data of profit of Welspun India Ltd. includes DEPB. In support thereof we submit herewith audited statement of accounts of Welspun India Ltd. for the year ended 31-3-2005. Same is the case with other parties referred by the ld. AO. All these parties have considered DEPB as part of their turnover. In support it submitted herewith a Statement showing profit margin together with notes to accounts downloaded from Capitaline Databases. It is submitted that there can be comparision of like to like. It has also held by the Courts and the Tribunals in a number of cases that export benefits such as DEPB are chargeable to tax as business profits. If the export benefits are considered as part of sales then the profit margin of the company would be 12.30% and not 5.04% as worked out by the ld. AO A detailed Annexure of the working was submitted for the ld. AO vide letter dated 5-12-2008. Copy of the same is submitted. (vii) As regard, computation of profit m....
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....etter dated 30-11-2007 submitted Profit & loss account split into three categories i.e. (i) sales to AE, (ii) sales to Non-AE and (iii) sales in domestic market where the gross profit margin reveals 17%, 6% and 1% respectively. However, the ld. AO has ignored and brushed aside these information in violation of the principle of natural justice. (xii) Attention was also invited to the recent ITAT, Pune Bench decision in the case of MSS India Pvt. Ltd. (ITA No. 393/PN/07). It was laid down by the bench in this decision that in a situation in which the revenue authorities seek to disturb the method of determining the arm's length price (ALP, as adopted by the assessee, it is necessary for them to demonstrate that, on the given facts of the case, a particular method will be more appropriate vis-à-vis the method adopted by the assessee and such an appropriateness of method must be shown on the touchstone of the factors set out in Rule 10C(2). (xiii) Without prejudice to the above, it contended that the special provisions relating to the Transfer Pricing have been enacted with a view to provide a statutory frame work which can....
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....t Italy does not qualify as a CUP in this instance. 6.7 Further, there is a difference in the Geographical markets also. While the AE is in Italy while the Wal Mart is based in USA. The USA market is much bigger than an Italian Market. The differences on this account are difficult to adjust or impossible to make." 12. As regards TNMM, the learned CIT(Appeals) agreed with the AO/TPO that the distinction between a bathrobe and Terry towel as pointed out by the assessee was insignificant/tolerable and they should be taken as comparables being in the same towel market for the purpose of TNMM. Accordingly, he found the 11 comparables selected by the TPO as acceptable. He, however, noted that export benefits such as DEPB were considered as part of turnover of the said comparables while working out the profit margin. He, therefore, held that the DEPB benefit received by the assessee during the year under consideration should be considered as a part of its turnover for working out the profit margin to make the comparison of like to like and similar to similar. Since the profit margin of the assessee on such consideration was coming to 12.30% as against the av....
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.... the action of the TPO on this issue especially when he found that the products exported by the assessee company to its AEs and non AEs were comparable. Relying on the decision of Pune Bench of ITAT in the case of Asstt. CIT v. MSS India (P.) Ltd. [2009] 32 SOT 132, he contended that CUP is the most appropriate method and the rejection of CUP by the Revenue authorities in the present case is not justified either in law or on the facts of the case. Referring to the working given on page No. 104 of his paper book, he contended that if the CUP is accepted as most appropriate method, there is no case of any addition that is required to be made on account of TP adjustment. 14. In reply, the learned DR submitted that different kind of bathrobes were manufactured and exported by the assessee. In this regard, he filed the details available on the assessee's web-side to show that wide range of bathrobes are manufactured and exported by the assessee. He contended that if the bathrobes manufactured by the assessee are of different types, how their export to AEs and non AEs could be aggregated and average price could be compared as claimed by the assessee. Relying on Rule 10B(2)(d) of the I....
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.... such average price which is likely to be varied depending on the type of bathrobes supplied as well as product mix of different types of bathrobes cannot be taken as comparable uncontrolled price (CUP) for the purpose of transfer pricing exercise since the said price cannot be taken as price of the similar products supplied by the assessee to AEs and non-AEs. As already observed, such average price of bathrobes is likely to vary in a wide range depending on the type of bathrobes supplied and their product mix and in the absence of exact data made available by the assessee to compare the prices of similar products supplied to AEs and non-AEs, CUP cannot be applied as most appropriate method for the transfer pricing exercise. Moreover, there was also a difference in geographical location and size of the markets also in as much as the AEs of the assessee were in Italy whereas the non-AEs i.e. Wal Mart was based in USA having much bigger market than Italy. We, therefore, find no infirmity in the impugned order of the learned CIT(Appeals) confirming the action of the AO in rejecting the CUP method for benchmarking and applying the TNMM and upholding the same, we dismiss the appeal of t....