TaxTMI 
TaxTMI 
2013 (9) TMI 408
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....allowed by the AO. It has been requested that additional ground may be admitted and decided by the Tribunal. 1.1 We have considered the additional ground filed by the assessee. We find that most of the grounds are already covered by the grounds raised originally in the memorandum of appeal. The only new ground is regarding the benefit of +/-5% which is a legal ground, facts relating to which are already on record. The additional ground is, therefore admitted. 2. We first take up the issue relating to TP adjustment made by AO in pursuance to order passed by TPO. The assessee was engaged in manufacturing of diamonds studded gold jewellery and trading of diamonds. The assessee sold diamonds studded jewellery manufactured by it to AE and had also imported diamond from the AE. Since the assessee had entered into international transactions, the AO had referred the matter to the TPO. The TPO asked the assessee to submit the details of transfer pricing study undertaken by assessee for determining the arm's length price (ALP) of the international transactions for manufacturing and trading segment separately. The assessee in the transfer pricing study selected TNMM as the most appropri....
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....ed by the assessee at 9.49% as per details given below:- S.No. Name of Comparable Company Net Sales Operating Cost (TC) Operating Profit (OP) PLI (OP/TC) 1. Sovereign Diamonds Ltd. 12.78 12.56 0.39 3.08 2. Shankar Jewels Ltd. 15.31 14.77 0.96 6.50 3 Fine Platinum (India) Ltd. 21.24 20.03 1.67 8.34 4. Goenka Diamond & Jewels Ltd. (Seg). 37.36 35.42 1.94 5.48 5. Goldium Jewellery Ltd. 55.06 48.30 6.78 14.04 6. Shreeji Jewellery Ltd. 59.07 56.98 2.09 3.66 7. Shantivijay Jewels Ltd. 59.81 58.11 2.23 3.84 8. Asian Star Company Ltd. (Seg) 70.66 57.25 13.41 23.41 9. Diagold Designs Ltd. 73.00 70.12 3.48 4.96 10. Fine jewellery (India) Ltd. 77.98 69.90 8.70 12.45 11. Shyam Star Gems Ltd. (Seg). 78.47 63.11 15.36 24.34 12. Su-Raj Diamond Industries Ltd. (Seg). 121.30 117.85 4.45 3.78 Arithematic Mean 9.49 Assessee 14.68 15.68 -0.85 -5.41 3.4 The assessee objected to the four comparables out of the nine comparables selected by t....
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....ame of the Comparable Company Reasons for Rejection 1. Diagold Designs Limited Manufacturing of Jewellery 2. Fine Jewellery (India) Limited Manufacturing of Jewellery 3. Indo Bonito Multinational Limited Non-availability of segments results 4. Neogem India Ltd. Trading of Studded jewellery activity 5. Shreeji jewellery Ltd. Manufacturing of Jewellery 6. Shrenuj Diajewels Ltd. Significant RPT of 99.79% 7. Vanguard Jewels Ltd. Trading of Studded Jewellery Activity 4.1 The TPO selected his own 10 comparables in the turnover range of Rs. 10 crore to 150 crore as the turnover of the assessee was 32.96 crore. The arithematic mean margin of these comparables was computed at 3.47 % as per details given in the table below:- S. No. Name of the Comparable Company Net Sales Operating Cost (OC) Operating Profit (OP) PLI (OP/OC)% PLI (OP/net sales) % 1. Zodiac-JRD MKJ Ltd. 11.88 11.35 0.35 4.68 4.47 2. Sunraj Diamond Exports Ltd. 12.75 12.34 0.42 3.38 3.27 3. Mini Diamonds (India) Ltd. 20.81 20.54 0.27 1.34 1.32 4. C Mahendra International....
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....n of the assessee is not correct and hence not acceptable. (iv) M/s Vanguard Jewels Limited: It can be seen from the financials that there is no sale and purchase of jewellery as contended by the assessee. Therefore this objection of the assessee is not correct and hence not acceptable (v) M/s Indo Unique Trading Pvt. Ltd: This comparable is functionally same, since assessee has also exports of 37% of its total trading sales. Hence this objection is not acceptable. (vi) M/s Varun jewels Private Limited: This comparable is functionally same, since assessee has also exports of 37% of its total trading sales and assessee's turnover is Rs. 32.95 crores and hence both are working on the same economic scale hence this objection is not acceptable." The TPO thus computed the arm's length price on the basis of PLI of 3.47% of the comparable against the PLI of .45% of the assessee and the adjustment made on this account was at Rs. 99,58,969/-. 5. The assessee raised objections against the TP adjustment proposed by the TPO before the DRP. The assessee objected to rejection of claim of the assessee of abn....
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....ent should be rejected. In regard to Goldium International (P) Ltd. the comparable referred by the assessee at the level of DRP, the learned CIT(DR) referring to the annual report of the company placed on record pointed out that there were 16% related party transactions in that case and, therefore it could not be considered as a good comparable. Referring to the judgment of Hon'ble High Court of Delhi in case of Mentor Graphics (Noida) (P.) Ltd. (supra), the learned CIT(DR) pointed out that the Hon'ble High Court in para 21 had clearly held that in the situations mentioned in section 92C(3), it was open to the AO/TPO to proceed to determine the arm's length price on their own. He referred to clause (c) of section 92C(3) in which it was clearly mentioned that in cases where information or data used in computation of arm's length price given by the assessee was not reliable or correct, the AO could proceed to determine the arm's length price on the basis of material or information or documents in his possession. In this case, the comparables given by the assessee had not been found reliable by the TPO for various reasons given and accordingly he had proceeded to select his own compar....
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....bles. The TPO had rejected the comparables by assigning proper reasons as mentioned in the para 3.1 earlier. We, therefore, see no merit in the submission made by the Ld. AR on this point. 8.2 The assessee has also objected to selection of new comparables by the TPO. It has been argued that when three comparables selected by the assessee were found suitable by the TPO then no further exercise was required to be find out new comparables. The learned AR for the assessee placed reliance on the judgment of Hon'ble High Court of Delhi in case of Mentor Graphics (Noida) (P.) Ltd., (supra) However from the perusal of that judgment, we find that even the Hon'ble High Court have held that in cases where conditions mentioned in section 92 C (3) are satisfied TPO/AO could proceed to determine the arm's length price on the basis of material or information or documents in his possession. One of such conditions prescribed in clause (c) of section 92 C (3)is that in case information or data used in computation of arm's length price given by the assessee are not reliable or correct, he can proceed to determine the arm's length price on his own. In this case the AO/TPO have not found the certain....
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.... carpets and the adjustment sought on account of labour unrest and under utilization of capacity had been restored to the file of AO. Facts of the present case as mentioned earlier are different. The relative position of capacity utilization as well as difficulty in standardization of capacity utilization has not been addressed. The rejection of claim by the authorities below is, therefore, upheld. 8.4 The learned AR for the assessee has also argued that the assessee had submitted a new comparable i.e. Galdium International Ltd. which had similar level of production as in case of the assessee which has not been accepted by the DRP without giving any reason. We have carefully perused the copy of annual report in respect of the said company placed on record. We find, that the said company was manufacturing as well as trading for which consolidated account had been maintained. The auditors in the note no. 7 have clearly mentioned that there were two reportable segment i.e. jewellery manufacturing and investment activity. The turnover of jewellery manufacturing segment has been given at 94.1 crore which also includes trading. Therefore, no separate data in respect of manufacturing i....