TaxTMI 
TaxTMI 
2016 (4) TMI 1121
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....as correct in determining the income of the assessee on the basis of the operating profit percentage on sales of its group company since it was not possible to correctly determine the taxable profits on the basis of profit and loss account prepared by it which inter-alia included expenses of capital nature and were not admissible. 3. Whether on the facts and circumstances of the case the CIT(A) has erred in not appreciating that the AO has correctly rejected the transfer pricing analysis submitted by the assessee company which has only two comparables and the AO was not given the opportunity to examine the fresh comparables submitted during the appellate proceedings. 4. Whether on the facts and circumstances of the case the CIT(A) has erred in holding that interest u/s 234B was not chargeable in this case by relying upon the decision in the case of DIT vs. Jacobs Civil Incorporated/ Mitsubishi by ignoring that the said decision has not been accepted by the Department and against which a SLP has been filed before the Hon'ble Supreme Court involving similar issue." 2. Briefly stated facts of this case are : during the processing of return of income filed by the a....
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....lained the reason for net loss as huge expenditure incurred without comparable receipts. TPO noticed that the assessee has sold his entire purchases during the year leaving closing stock at nil. 6. From the result of business segment it has come on record that the assessee's group is earning operating profit at 16.60% for the year 2004 and 18.82% for the year 2003. TPO taking the role of Brand royalties as important feature with regard to the sales of a particular brand came to the conclusion that the price of brand is not dependent upon any other brand of cigarettes and thus AO made the comparability of assessee company with its own group companies who are dealing with the same brand and thereby rejected the TP report. AO has not examined the issue of allow ability of expenditure for determination of the taxable profit. AO has taken weighted average of the operating profit rate of the group at 16.57 and hold the 50% of the profit to be attributable to the activities of the assessee in India and computed the taxable income of the assessee in India at 70% of Rs. 1,11,84,340/- i.e. 78,29,038/-. 7. Assessee carried the matter before the Ld. CIT(A) who has allowed the appeal. Fee....
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....ho is operating in India through a branch. Therefore, though the audited accoaunt of branch is relevant for determination of the profit of the assessee in India, yet it is not the only criteria for determining the profit, considering the arrangement under which the assessee operates. Even if we consider the audit report, there are various expenditures claimed in the profit and loss account, which are not allowable for the purpose of computation of taxable Income of the assessee in India as per the provisions of Income Tax Act. For instance, trade offer expenses amounting to Rs. 88,43,852/-, professional & consultancy services and various other expenses. Some of the expenses charged are capital in nature. Since, for determination of taxable profit, the operating profit of the group is being resorted to, the aspect of allowability of expenditure is not considered as of now in this rder. In view of the income of the assessee is recomputed as under :- The weighted average of the operating profit rate of the group is 16.57. Since this operating margin accounts for both manufacturing and selling, 50% of the profit is held to be attributable to the activities of....
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....ich assessee company incurred huge expenses without comparable receipt. Thus, assessee company cannot be compared with the assessee's group company only without analysing the functional and risk disparities between the two company. Assessing Officer merely decided on the basis of profit margin of the group for bench marking without analysing the economic and marketing conditions of both the companies. 12. Assessing Officer again proceeded to recompute the income of the assessee on the basis guesswork by taking operating margin accounts for both manufacturing and selling at 50% of the profit attributable to the activities of the assessee in India, that too without providing opportunity of being heard to the assessee. AO also proceeded on the basis of reasonableness by attributing 30% of the profit outside India and remaining 70% to India where sales have taken place by ignoring law applicable to the facts and circumstances of this case. 13. At the very outset, it is fairly conceded by Ld. D.R. that there is no dispute regarding the extended marketing supports services rendered by the assessee company and the only dispute is regarding the aspect of distribution. Ld. A.R. for th....
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....fficer has lost sight of the fact that trading activities have been carried out by the assessee company for a period of five months only during the year under consideration and in such a short period it is not feasible for expenses of Indian Branch Offices to be set off by income generated out of trading activities because during the initial years of operation, expense of a company ought to be at higher side; ii) that the Assessing Officer has merely taken GP rate @ 16.57% of assessee's group companies by rejecting TP study adopted by the assessee company as against GP rate claimed by the assessee @ 14.44% by comparing it with the group as a whole without discussing the total number of functions being carried out by the Altria group; iii) that the Assessing Officer has also lost sight of the fact that assessee company having branch offices in India, is a distributor having responsibility for its business operation in India including market risk, price risk etc. So, keeping in view the facts, Ld. CIT(A) has rightly applied the resale price method (RPM) for benchmarking, which is the most appropriate method in this case;; iv) that gross margin of the assess....