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TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 53
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....nsactional net margin method and the operating profit margin was taken as the profit level indicator. 1(iii) That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in not appreciating the facts that the difference in product range does not make it a non-comparable as the transactional net margin method is only vulnerable to functional differences and not to the product differences. Similarly, the comparable having 52 per cent. export income and the assessee having 100 per cent. export income will not make a difference as the majority of income of comparable (more than 50 per cent.) is also from exports. 2(i) That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in deleting the addition of Rs. 7,50,000 on account of treating agricultural income as "income from other sources". 2(ii) That the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in not appreciating the facts that in the girdawari furnished by the assessee during the course of assessment proceedings, there is no mention of "Poplar trees", rather only "Bagh" is mentioned in the girdawari. 3. That the learned Commissioner of Income-ta....
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....rcast Worldwide (P.) Ltd. Australia Dev Arjuna Enterprises Pvt. Ltd. 100% Forcast Ltd., Canada Dev Arjuna Enterprises Pvt. Ltd. 100% 6. The assessee, as observed by the Transfer Pricing Officer has determined the arm's length price by adopting comparable uncontrolled price method (CUP method). The Transfer Pricing Officer observed that the said method was found to be incorrect as the transfer pricing report filed by the assessee was found to be sketchy and the assessee had not carried out any function, assets and risk analysis. It was brought on record by the Transfer Pricing Officer that the assessee had failed to make any submissions as to how the transactions of exports to associated enterprise was comparable with uncontrolled transactions. The Transfer Pricing Officer provided various opportunities to the assessee and according to the Assessing Officer, the same were not availed of by the assessee. The details furnished by the assessee are also highlighted in which the assessee, on the basis of analysis above three accounts of the parties submitted that in Canada and Australia, the assessee has sold product exclusively through associate enterprises, as such comparativ....
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....led to selection of Shri Ganesh Forging Ltd. as the final choice and it was presumed by the Transfer Pricing Officer that the assessee has no objection on the selection of the said comparable. The operating profit/sales margin in the case of Shri Ganesh Forging Ltd. was 6.64 per cent. whereas the same was concluded at 1.26 per cent. in the case of the assessee. The Transfer Pricing Officer, therefore, proceeded to work out the arm's length price on the basis of transactional net margin method and made the addition of Rs. 1.75 crores. 7. The assessee challenged the findings of the Transfer Pricing Officer and addition before the learned Commissioner of Income-tax (Appeals) and detailed written submissions of the assessee are reproduced in the appellate order in which the assessee briefly explained that group of assessee companies are manufacturing units and they are selling 90 per cent. products to Munish International. Munish International is exporting various forged and cast product items in U.K., Germany, France, Australia, Canada and the U.S.A. In order to create better understanding with the buyer and also to provide better services, the group has opened wholly owned subsi....
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....actions were carried out and no adverse inference had been drawn against the assessee. In the year under consideration, the assessee was primarily engaged in buying forged items from the domestic market and exporting them outside India to its associate enterprises and non-associated enterprises across the globe. It was, therefore, business of the assessee in trading/distribution. The comparable uncontrolled price method was, therefore, most appropriate method in the case of the assessee which are also approved by the guidance note issued by the Institute of Chartered Accountants of India being there is a transfer of goods in the case of the assessee. The assessee further submitted that the assessee made sufficient compliance before the Transfer Pricing Officer by filing the adequate details. (i) The Transfer Pricing Officer has considered Shri Ganesh Forging Ltd. as only comparable company and no adequate opportunity was provided to the assessee to raise the objection in this regard. In this company, there was manufacturing but in the case of the assessee, there was no manufacturing, therefore, it could not be considered as compa rable. In the case of Shri Ganesh Forging Ltd., wh....
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....proceedings, were also filed by way of additional evidence. The same are noted at page 36 of the appellate order and reads as under : 1. Summary of comparable transactions with copies of invoices and details of total sale, their terms, payment period. 2. Submissions on rejection of Shree Ganesh Forgings Ltd. as a comparable and the difference in arriving at the operating margins. 3. Certification held along with proof of brand existence. 4. Working of sales promotions expenses. 5. List of product range of Shree Ganesh Forging Ltd. 6. Balance-sheet of Shree Ganesh Forging Ltd. (i) It was, therefore, submitted that since the assessee was prevented by sufficient cause, therefore, these documents could not be filed before the Transfer Pricing Officer. It was further submitted that the case of Shri Ganesh Forging Ltd. is not a comparable case because it is not functionally comparable, therefore, it should be rejected. It was also submitted that transactional net margin method is not applicable in the case of the asses see therefore, the addition was unjustified. The comments of the Assessing Officer were also called for in which the Assessing Officer submitted that despite....
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....r had carried out a fresh study under transactional net margin method wherein M/s. Ganesh Forging Ltd. had been chosen as a comparable having a profit margin of 6.64 per cent. It had been pointed out by the authorised representative of the appellant during the appellate proceedings that the transfer pricing study carried out by the Transfer Pricing Officer was seriously flawed as M/s. Ganesh Forging Ltd. was functionally completely different as 50 per cent. of its turnover was on account of manufacturing whereas the assessee had no manufactur ing at all. It is vitally important to note that the Transfer Pricing Officer in response to authorised representative's submissions had clearly accepted in para 2 of his report dated March 7, 2013 that some manufacturing in comparables case would not make any difference but substantially would. It therefore becomes quite apparent that M/s. Ganesh Forging Ltd. having 50 per cent. of its turnover from manufacturing is not fit to be treated as comparable under transac tional net margin method. It is also to be appreciated that M/s. Ganesh Forging Ltd. has about 50 per cent. turnover from exports whereas the assessee had 100 per cent. exports....
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.... Since it has been held that the comparable used by the Transfer Pricing Officer under transactional net margin method was functionally substantially different from the appellant, therefore, could not lead to correct determination of arm's length price, the addition based by the Trans fer Pricing Officer on the said transactional net margin method is not justified. In this background, the arm's length price determined according to the comparable uncontrolled price method as carried out by the assessee is held to lead to correct arm's length pricing as recorded in the assessee's books of account. Therefore the addition made on this account is directed to be deleted." 12. We have heard the learned representatives of both parties. The learned Departmental representative relied upon the order of the Assessing Officer and submitted that though the comparable uncontrolled price method is in favour of the assessee but data was not filed before the authority below. It was filed only before the learned Commissioner of Income-tax (Appeals) at appellate stage. He has submitted that the Transfer Pricing Officer has correctly selected one comparable in the case of Shri Ganesh F....
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....method was appropriate and there are vital differences in functions of M/s. Ganesh Forging Ltd. therefore, it was not comparable. (i) The assessee has also highlighted various other issues in the writ ten submissions before the learned Commissioner of Income-tax (Appeals) to show that Shri Ganesh Forging Ltd. is not a comparable case to be adopted for the purpose of applying transactional net margin method in the case of the assessee. There is no other comparable brought on record to justify adoption of transactional net margin method in the case of the assessee for the purpose of making the addition. The learned Commis sioner of Income-tax (Appeals), therefore, on consideration of the relevant material on record, rightly rejected the fresh study carried out by the Assessing Officer to adopt comparable of Shri Ganesh Forging Ltd in this case. The findings of the learned Commissioner of Income-tax (Appeals) are supported by the fact that in subsequent assessment year 2007-08, the assessee carried out the similar trading activities with associate enterprises and on the same type of study and material on record, the Transfer Pricing Officer did not suggest to make any addition again....
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.... which remand report from the Assessing Officer was also called for in which the Assessing Officer has not pointed out any infir mity in the material/study furnished by the assessee at the appellate stage in support of the application of comparable uncontrolled price method in the case of the assessee. Therefore, there is no error in the order of the learned Commissioner of Income-tax (Appeals) in considering the evidences produced at the appellate stage. The assessee was prevented by sufficient cause from producing additional evidences before the Transfer Pricing Officer/Assessing Officer because the accountant who was looking after the matter was not well at that stage and ultimately he expired. This explanation of the assessee have not been challenged by the Revenue through any material on record. The learned Commissioner of Income-tax (Appeals) on perusal of the transfer pricing study carried out by the assessee, came to the finding that prices charged from the uncontrolled enterprises are either equal or lower than the prices charged from the associate enter prises. The findings of fact recorded by the learned Commissioner of Income-tax (Appeals) has not been rebutted by the R....
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.... cheque on sale of poplar trees. The Assessing Officer held that the assessee could not support the claim of amount being on account of sale of poplar trees as no evidence of possession of land and cultivation has been filed. The learned Commissioner of Income-tax (Appeals), considering the submission of the assessee, deleted the addition. His findings in para 18 of the appellate order are reproduced as under : "I have considered the basis of addition made by the Assessing Officer and the arguments of the authorised representative on the issue. It is seen that the Assessing Officer has doubted the assessee's claim regarding earning of agricultural income on account of sale of poplar trees on the ground that the assessee had not submitted the proof of ownership/possession of the land and cultivation. In this regard, the assessment record had been perused and it was seen that the assessee had submitted the specific proof in this regard vide his letter dated November 27, 2009 as under : 'The land in question, where poplar tree was plant, was taken on lease in the year 1996. The copy of the lease deed is already filed. The sapling of poplar tree was done in the year in whic....