TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 325
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....First issue in Revenue's appeal for A.Y. 2005-06 is with regards to addition of Rs. 1,59,51,605/- on account of adjustments in respect of Arms Length Price made u/s.92CA(6) of the Act. Assessee is engaged in business of manufacturing and trading chemicals and other materials. During year under consideration, Assessing Officer noticed that assesse had sold various products to two associate enterprises viz. Amati Packaging Manufactures GmbH, Germany and Schutz & Co. (GmbH), Germany and the total value of such transactions was of Rs. 17,89,86,080/-. Assessee filed report in Form 3CEB under Rule 10E alongwith the return of income. Assessing Officer made a reference to Transfer Pricing Officer (TPO), Addl. CIT (TPO-1), Ahmedabad. The TPO passed order u/s.92CA(2) of the Act wherein he made total adjustment of Rs. 1,59,51,605/-. 3.1 Matter was carried before the First Appellate Authority wherein various contentions were raised on behalf of assesse as detailed in para 2.1 and having considered the same, CIT(A) granted relief to assessee. Same has been opposed before us on behalf of Revenue inter alia submitting that CIT(A) erred in directing to delete adjustment of Rs. 1,59,51,605/- made ....
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....margin that the same taxpayer earns in comparable uncontrolled transactions." Where this is not possible, the net margin that would have been earned in comparable transactions by an independent enterprise may serve as a guide, A functional analysis of the associated enterprise and, in the latter case, the independent enterprise is required to determine whether the transactions are comparable and what adjustments may be necessary to obtain reliable results. Further, the other requirements for comparability, and in particular those of paragraphs 3.34-3.40 must be applied." In view of the above guidelines of OECD, it is clear that, in the present case, while adopting the CUP method the TPO has compared the prices of those companies who produces and sells in small quantities and not as produced by the assessee-company. Sales to the Non-AE as compared by the TPO are not at all comparable inasmuch as these Non-AE entities do not undertake any marketing exercises, no aftersale support and technical support. Even otherwise, the quantity is un-comparable with that of the assessee company. The quantity sold by Vipor Chemicals and Cadila Pharma is too small to be taken into consideration for....
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....ility." In view of the above guidelines and the facts of the present case, it is clear that the "Transactional Net Margin Method"(TNM Method) as understood by us and as per Rule 10B(1)E of IT Rules, the application of correct TNM Method for computing net margins of the assesse, the similar Transactions relating to the product of the assesse-company were to be taken into consideration and benchmark of net margin determined from comparable uncontrolled transactions or net margin found by another unrelated enterprises from a comparable uncontrolled transaction should be considered. In the present case, the assessee while adopting the TNM method has given the complete details regarding Transfer Pricing Documentation, Complete Ownership Structure, Profile of the assesse-company, Business Description and the Financial capacity / Asset base and that also of Associated Enterprise were provided to the TPO. The assessee-company has demonstrated the average of PBIT of various group companies in the Organic Chemical Business during the relevant year and the profit earned during the same year, are almost identical and comparable The argument of the learned DR, on factual aspects that the data ....
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....'s appeal is allowed. Nothing contrary was brought to our knowledge on behalf of Revenue and we find that in assessee's own case in ITA No.3590 & 3751/Ahd/2007 for A.Y.04-05, similar issue has been decided by ITAT in favour of assessee following case of associate concern viz. M/s Dishman Pharmaceuticals & Chemicals Ltd. In view of above, CIT(A) was justified to direct the Assessing Officer to delete the adjustment of Rs. 1,59,51,605/- made in assessment order in respect of Arm's Length Price because PBIT of 17.13% is very much comparable and better than the industry average of 12.87%. Even margins with AE at 16.66% are better than overall PBIT. TPO was not justified in applying comparable Uncontrolled Price method and compare the purchase of 72,000kgs. Worth Rs. 5,25,69,297/- made from Germany with meager quantity of 2,000 kgs. Worth of Rs. 10,40,000/- made from Indian Party. Domestic and international rates cannot be compared. Fundamental requirement, in any of the method selected, is selection of comparables for benchmarking international transaction. Whatever methodology is chosen for the purpose of determination of ALP u/s.92C, the criteria, as specified in the Act and the Rul....
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....the manufacture of bulk drugs and that in assessment of A.Y. 2004-05 addition was made on account of difference in actual consumption of raw material and standard consumption prescribed under Exim Input and Output Norms. Assessing Officer asked to furnish details of variation between actual consumption and the standard consumption. As per the details given in Annexure-II to the assessment order, Assessing Officer noticed that there was short consumption of raw material of Rs. ;,77,61,653/- and excess consumption of raw materials of Rs. 74,43,999/-. Assessing Officer referred to assessment order of A.Y. 2002-03 and the statement of Sri R. S. Sharma, the then General Manager (Works) and addition made for that year of Rs. 89,l0,724/-. After relying on the assessment orders of earlier years, Assessing Officer made disallowance of Rs. 2,52,05,652/-. 4.1 Matter was carried before the First Appellate Authority wherein CIT(A) gone through the order of ITAT for A.Y. 2002-03, wherein issue has been decided in favour of assesse, whereby he deleted the addition of Rs. 2,52,05,652/-. The said order of ITAT in ITA No. 554/Ahd/2006 for A.Y. 2002-03 has been annexed before us, wherein vide para 4....
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....al has been in accordance with the standard input output ratio. The appellant's submission that the consumption depends on various factors like efficiency of the plant and process involved is only an afterthought because the production manager who is the in-charge of production has nowhere mentioned that there is even slight variation in consumption from the standard input output ratio. The appellant has also not proved with any other evidence that the consumption has been different because of factors mentioned by it. Therefore, the consumption of raw material will have to be compared vis a vis the standard input output ratio and there is no justification of giving margin of 10% considering the statement of General Manager. After comparing the standard input and output ratio and actual consumption, it was found that there was a deficiency of certain raw material of Rs. 63,04,605/-and there was excess consumption shown by the appellant of other raw materials as Rs. 1,32,57,449/-. As the deficit and excess is of different raw materials, there cannot be offset against each other as has been done by AO in the assessment order. The appellant's another argument that record are being exam....
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....d the parties and considered the rival submissions. It is true that no records have been maintained by the assessee after carding stage that by itself is not a ground for making addition and treating the production at the carding stage as final. The difference of 11,506 kg is due to wastage in the production approximately 13% of the production and looking to the standard fixed by the Handbook of the Procedures, the percentage of wastage cannot be said to be excessive. In these circumstances, particularly in the absence of any specific material to show that the assesses has made a false claim of wastage, which in any case is within the parameters laid down under the Excise Duty Exemption Scheme, no addition can be made to the income of the assessee. The conclusion of the Assessing Officer, as observed by the CIT(A) is based on the production register up to the carding stage is incomplete or partial stage of the material and, the addition made on the basis of such incomplete and partial effect cannot be justified. The CIT(A), in our opinion, was right in allowing the claim of the assessee." 42. It is seen from the above facts as narrated in the order of the CIT(A), which are undispu....
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....alance of M/s. Dishman Pharmaceutical & Chemicals Ltd. was outstanding at Rs. 4 crore against which paid up capital and surplus of assesse was at Rs. 1,50,00,000/- and Rs. 6,98,59,670/- respectively. Further during year under consideration, assesse has given sum of Rs. 2,70,00,000/- to M/s. Dishman Pharmaceutical & Chemicals Ltd. against which they have returned amount of Rs. 3,85,90,000/- and therefore, on contrary, amount has been repaid during year under consideration. In view of this, disallowance was deleted. Learned Authorized Representative pointed out that this issue is covered by the order of ITAT for A.Y. 04-05 in ITA No. 3590 & 3751/Ahd/2007, dated 10.12.2010 has decided similar issue in favour of assesse by observing as under: "18. We find that these loans are old loans and no disallowance was made in earlier years and moreover these are business advances for the purpose of business expediency as held by Hon'ble apex court in the case of S. A. Builders (supra). Even otherwise, we find that the assesseecompany having interest free funds in the sum of Rs. 7,34,00,922/- (share capital Rs. 1.50 crore + reserves and surplus Rs. 5,84,00,922/-). Accordingly, this issue is als....
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....issioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of interest amounting to Rs. 29,11,419/-made by the Assessing Officer u/s.36(i)(iii) of the I. T. Act." 8. First issue is with regards to addition of Rs. 1,58,88,008/-made by Assessing Officer on account of adjustment of Arm's length Price. Similar issue arose in ITA No. 2060/Ahd/2009 for A.Y. 2005-06, wherein vide para 3 of this order, we have decided the similar issue in favour of assessee. Facts being similar, so following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has rightly deleted the addition of Rs. 1,58,88,008/- made on account of adjustment of Arm's Length Price. Same is upheld. 9. Next issue is with regards to addition of Rs. 2,49,98,986/- & Rs. 84,61,907/- u/s.69 of the I. T. Act on account of unexplained investment in purchase of raw materials. We find that similar issue arose in ITA No. 2060/Ahd/2009 for A.Y. 2005-06, wherein vide para 4 of this order, we have decided the similar issue in favour of assessee. Facts being similar, so following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has rightly ....
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.... At the outset of hearing learned Authorized Representative without prejudice to the merit of the case and due to smallness of amount did not press this appeal. So, same is dismissed as not pressed for above said reason. 14. As a result, this appeal in ITA No. 2888/Ahd/2011 for A.Y. 2006-07 is dismissed. 15. In ITA No. 3224/Ahd/2010 for A.Y. 2004-05, Revenue has filed the appeal on the following ground: "1. The ld. CIT(A) has erred in law as well as facts of the case in deleting the order passed u/s.201(1) & interest charged u/s. 201(1A) of the IT Act of Rs. 45,38,515/-and Rs. 31,76,960/- for A.Y. 2004-05 by the A.O. even though the assesse had advanced fund to M/s. Dishman Pharmaceuticals & Chemicals Ltd. and the amounts advanced were in the nature of deemed dividend as per provisions of Section 2(22)(e) of the IT Act and same is subject to sec.194 of I. T. Act." 16. In ITA No. 3225/Ahd/2010 for A.Y. 2005-06, Revenue has filed the appeal on the following ground: "1. The ld. CIT(A) has erred in law as well as facts of the case in deleting the order passed u/s.201(1) & interest charged u/s. 201(1A) of the IT Act of Rs. 57,92,070/-and Rs. 33,59,400/- for A.Y. 2005-06 by the A.O....