TaxTMI 
TaxTMI 
TaxTMI 
2014 (2) TMI 1287
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....h price and the same has been accepted by the AO/TPO in the past; (ii) the working of OP/Net sale and OP/TC of Ashnoor Textiles Mills Ltd. and Modern Terry Towels Ltd. as worked out by the TPO does not match with the data from Capitaline database; and (iii) the ld. TPO has chosen to ignore the comparative data of Santogen Exports Ltd. and Vanasthali Textiles Industries without assigning any reasons when in the past comparative data of these companies were considered. 2. The id. CIT(A) erred in holding that levy of interest u/s.234B, 234C and 234D of the Income Tax Act, 1961 is mandatory. The Appellant denies its liability for such interest. 3. The Ld. CIT(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) is pre-mature. The Appellant denies its liability for such penalty. Grounds of Revenue's Appeal: "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: The order of the CIT(A) is opposed to law and facts of the case. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) ha....
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....uded the same while working out margin of the assessee as well as comparable companies. Accordingly, the TP adjustment of Rs. 3,96,43,381/- was made as per following table: Operating Cost Rs.27,55,33,552/- Arms Length Mean Margin 9.06% of the Operating Cost Arms Length Price (ALP) @109.06% of operating cost Rs.30,04,96,892/- Arms Length Price of Service rendered Rs.30,04,96,892/- Price received (Excl. other income) Rs.26,08,53,511/- Shortfall being adjustment u/s. 92CA Rs. 3,96,43,381/- 2.3 On consideration of the submissions of the assessee Ld. CIT(A) has held that TPO was right in rejecting CUP method and applying TNMM method. However, Ld. CIT(A) has held that TPO's action of excluding depreciation as non-operating expenses is not acceptable and on DEPB it is the finding of Ld. CIT(A) that the same should be considered as operational receipts. Accordingly, the grounds raised by the assessee have been partly allowed by Ld. CIT(A). The department in its appeal is agitating the action of Ld. CIT(A) regarding depreciation to be treated as operating expenses. The assessee in its appeal is contesting the order of Ld. CIT(A) regarding application of TNMM in place of CUP me....
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....in the comparables and depreciation is considered as operating cost then the assessee's margin will be at arms length as the same will be 1.52% against arithmetical means of comparables at 1.49%. He also invited out attention towards these submissions of the assessee which are recorded by Ld. CIT(A) in para 13 at page 19 of the order of Ld. CIT(A), wherein such plea was taken that these two comparables were chosen as comparable by TPO for assessment year 2007-08. The said para of Ld. CIT(A) read as under: "xiii. The appellant in its submission has contended that the TPO has chosen to ignore the comparative data of Santogen Exports and Vansthari Textile Industries without assigning any reason for doing so. In this regard, it is stated that both these companies were chosen as comparables by the TPO for A.Y.2007-08. However, in the search conducted for the year under consideration for the ( purposes of benchmarking these comparables did not form part of the set of comparables finally arrived at by the TPO. It is further mentioned that simply for the reason that these companies were chosen as comparables in the earlier years cannot be the reason for taking them in the set of compara....
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....s were included in the list of comparables during the assessment year 2007-08. It has not been shown that these two comparables were consistent loss making companies. It is the plea of the assessee that comparables should be chosen from the perspective of their functional comparability and as per parameter laid down in Rule 10B(2) of Income Tax Rules, 1962. It was also the submissions of the assessee that these two companies had made profit in the earlier years and have suddenly come into losses in the year under consideration. If it is so, those two concerns cannot be excluded from the list of comparables just for the reason that for the year under consideration these two concerns have incurred losses. Therefore, we se no justifiable reason for exclusion of these comparables. 5.1 Now coming to the plea of the assessee that DEPB should be taken as operating income, we found that Ld.CIT(A) vide para-11 at page 18 of his order has held that DEPB should be considered as operating income and if any such receipt is there in the case of comparables, the same should also be included on actual as reflected in the annual report of comparables and not based on any assumption or presumption ....
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....961/Mum/2011. 5.2 In view of above discussion, we do not find any error in the order of Ld. CIT(A) vide which it is held that DEPB benefits should be included in operating profit margin. We are aware that Department in its appeal has not agitated such direction of Ld. CIT(A) but as it was argued before us and we uphold the inclusion of DEPB benefit in operating profit margin. 5.3 So far as it relates to contention of the Revenue that Ld. CIT(A) has erred in holding that depreciation be treated as operating expenses while computing ALP by TNMM, we found that Ld. CIT(A) has decided this issue in favour of the assessee by the following observations: "The TPO in his order has not considered depreciation as operating expense in nature. In this regard it is mentioned that the appellant is in to manufacturing and depreciation is cost which needs to be considered as operating cost. Further under TNMM the net profit needs to be considered and net profit cannot be either notional or one which is computed not in accordance with the accepted norms. Further under TNMM, PBIT is normally considered net profit for the of computing the profit ratio. Only portion of non-operating revenue and non....