AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 1343
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.... Assessing Officer on account of upward adjustment in the international transaction related to sales." 2. Assessee company is engaged in the business of manufacturing and export of Diamond studded jewellery. During year, assessee has entered into two international transactions with its associated enterprises. An amount of Rs. 7,13,35,151/- was received from K. Girdharlal Inc. (KG USA) for export of diamonds studded gold jewellery. An amount of Rs. 63,120/- has been paid to K. Girdharlal (Hongkong) Ltd. (KG HK) for import of mountings. For both these transactions, the method used was Transactional Net Margin Method (hereinafter called as 'TNMM'). Assessing Officer referred this case to the Additional CIT (Transfer Pricing)-III, Mumbai to co....
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....ring the year. The TPO stated that assessee has incurred loss due to non-recovery of fixed assets and therefore, it would be appropriate to take gross profit as bench marking. The TPO has not discussed in his order as to how he has arrived at CPM as the most appropriate method and TNMM is not the most appropriate method. As per the provisions of Section 92C, Assessing Officer has to follow the following steps before making adjustments to the income shown by assessee in respect of transfer policy:- "(a) As per the provisions of sub-section (3) of Section 92C, if the A.O. is of the opinion that the price charged or paid is not in accordance with the most appropriate method mentioned in sub-section (1) and sub-section (2) or if he is of the o....
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.... nor the TPO have discussed as to why the TNMM followed by assessee was wrong and why it was not acceptable. The TPO has pointed out no defect at all in the method followed by assessee except saying assessee has incurred loss due to non-recovery of fixed assets and, therefore, it would be appropriate to take gross profit as bench marking. Even in remand report, neither the Assessing Officer nor the TPO was justified in their observations. In fact, they had not followed the procedures laid down in Section 92C of the Act and in Rules 10B & 10C. The TPO has not made any attempt in showing why the results of Deep Diamond India Ltd., Moon Diamonds Ltd., Shanti Vijay Jewels Ltd. and Sovereign Diamonds Ltd. are comparable for calculating the gross....
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....ses from its related company of only Rs. 63,121/- and hence these cases are not comparable. 2.7 With regard to Shantivijay Jewels Ltd, the stand of assessee has been that this case is also not comparable because this company was in existence for the last 31 years and it was well established in the market whereas assessee has started full fledged operation in the current year only that too from January 2004 i.e. only for three months as this is the first year of assessee company. Shantivijay Jewels Ltd. in located in SEEPZ whereas the assessee company was not located in SEEPZ and hence the benefits availed by Shantivijay Jewels Ltd. were not available to assessee compare like duty free imports of plant and machinery, spares and consumables.....
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....s Ltd., 7.38% in respecl: of Moon Diamonds Ltd., 14.53% in respect of Shantivijay Jewels Ltd. and absolutely high being 53.98% in respect of Sovereign Diamonds Ltd. The stand of assessee has been that TPO has not explained as to why the cases having such huge variation have been adopted. 2.10 With regard to Moon Diamonds Ltd., the stand of assessee has been that 7.38% gross profit margin on cost is included in the table then why the assessee's 7.4% gross profit margin on cost was not found acceptable. 2.11 In view of above, we find that the Assessing Officer /TPO has not given any justification for adopting the CPM and for choosing the four cases mentioned above and for rejecting assessee,s calculations. Even in remand report, Assessi....