TaxTMI 
TaxTMI 
2019 (9) TMI 308
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...., vide grounds of appeal No.7, 8 and 9, which read as under:- 7. Inappropriate consideration of segmental operating profit margins of the Appellant. Erred on the facts and in circumstances of the case and in law in considering segmental operating profit margins related to gold and silver segment of the Appellant while applying TNMM instead of entity wide margins. 8. Inappropriate computation of transfer pricing adjustment on the entire segmental revenue of the Appellant instead of adjustment, if any only on the value of international / specified domestic transactions of the Appellant. Erred on the facts and in circumstances of the case and in law by computing the transfer pricing adjustment on the entire segmental revenue of the Appellant instead of adjustment, if any only on the value of international/ specified domestic transactions of the Appellant. 9. Inappropriately not aggregating the specified domestic transaction pertaining to payment of director's remuneration while applying TNMM. Erred on the facts and in circumstances of the case and in law by not aggregating the specified domestic transaction pertaining to paymen....
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....ies of the firm at agreed consideration of Rs. 9091.82 lakhs, whereas assessee in the agreement has mentioned sum of Rs. 8583.32 lakhs and hence, there was difference of Rs. 508 lakhs. The extract of Form No.3CEB is reproduced at para 7.2.3 at page 19 of TPO's order. The variation of amount of consideration in different documents was confronted to the assessee and the assessee was asked to explain the same along with documentary evidence. The second plea of assessee that the transaction was not reported as expenditure was also found to be incorrect as the assessee in clause No.23 of Form No.3CD had made certain reports and the TPO was of the view that where the assessee had shown it as purchases, therefore the same figure might have been reflected in expenses of the assessee company, thereby reducing the margins of assessee. The assessee was asked to explain that how the figure of Rs. 23,229.60 lakhs was worked out and what were the supporting evidences. The TPO observed that in the absence of any justification, the transaction amount of Rs. 2,32,29,60,348/- for purchase of gold, silver and diamond jewellery and bullion stock of associated enterprise as mentioned in Form No.3CD ....
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....n and he took into consideration the segmental information in Notes 22(a) of the Notes and computed PLI on the basis of segmentals available. The TPO thus, computed segmental ratio of OP/OC at 5.29%. The TPO also re-computed the PLI of comparables and in the final, he took three concerns as comparables, whose mean margins as per working of assessee were 8.74%, but the margins as worked out by TPO were 8.98%. The TPO thus, proposed an adjustment of Rs. 17,76,98,384/-. The assessee had not submitted any details with regard to Directors remuneration and hence, an adjustment of Rs. 2.03 crores was treated as accepted by assessee. Thus, the TPO proposed total adjustment of Rs. 19.80 crores in respect of transaction entered into by the assessee. The Assessing Officer passed draft assessment order, against which the assessee filed objections before the Dispute Resolution Panel (DRP), which gave certain directions vide its order dated 24.09.2018. The TPO gave effect to the aforesaid directions of DRP and re-worked the PLI of comparables Tribhovandas Bhimji Zaveri Ltd. and KP Sanghvi International Ltd. Consequent to the order of TPO, the Assessing Officer made an adjustment of Rs. 16,56,59,....
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....o item-wise segmental details were available, though the said concern was engaged in sale of gold and silver and jewellery, diamond jewellery. With regard to comparable Tribhovandas Bhimji Zaveri Ltd., he made reference to the financials at pages 382 to 398 of Paper Book and pointed out to the breakup of revenue earned by the said concern, wherein no segmentals were again available. The learned Authorized Representative for the assessee pointed out that if the margins of above comparables are applied, then all of them were engaged in the business of gold, silver and diamond jewellery and in case same simile applied, then the entity-wise assessee's margins were to be applied, which worked out to 8.47%. Our attention was drawn to page 251 of Paper Book in this regard. In case the margins of assessee were correctly computed at 8.47% and the mean margins of comparables after DRP directions are 8.73%, then the margins shown by assessee were within tolerance level and no adjustment needs to be made in the hands of assessee. 9. Coming to second issue vide ground of appeal No.9, the learned Authorized Representative for the assessee stated that once entity level results are taken up, th....
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....t 5.29%. The learned Authorized Representative for the assessee drew our attention to page 251 of Paper Book. The perusal of same reflects that the assessee had while computing operating profit margins had taken the total income as per Profit and Loss Account and after excluding the non-operating income i.e. interest income had adopted the operating income at Rs. 504.52 crores (approx.) as against which the total expenses excluding non-operating expenses were deducted and the balance operating expenses worked out to Rs. 4.62 crores (approx.). The total operating profits were Rs. 42,73,12,390/- and OP/OR worked out to 8.47%. 13. The TPO however, computed the margins of assessee by applying segmental details at Rs. 481.56 crores. The segmental information in Note 22(a) of the Notes was taken and the margins (OP/OR) were computed at 5.29%. Initially, PLI of assessee under para 10 was computed by taking revenue from operations (gross) at Rs. 503.30 crores and OP/OR worked out to 7.02%. 14. The assessee is aggrieved by the order of TPO in computing PLI. In this regard, the learned Authorized Representative for the assessee pointed out that for segmental reporting, the assessee ....
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.... diamonds at Rs. 75.93 crores, jewellery at Rs. 135 crores and other raw materials at Rs. 79 lakhs has been reported. The margins of third concern have been given but no segmentals in that concern has been given and the total revenue has been applied to compute the margins of said comparable. In such scenario, the TPO has erred in applying two different approaches i.e. first in computing margins of assessee by only taking segmentals of gold and silver division and excluding the second division of diamonds and semi precious stones. On the other hand, in the case of three comparables, revenue from all the divisions has been applied as no segmentals have been supplied or made available to the TPO in this regard. Accordingly, we hold that the assessee's entity-wise margins i.e. its dealings in gold, silver and diamond jewellery in entirety is to be applied and in this regard, the margins of assessee would work out to 8.47%. The TPO has after the directions of DRP worked out the mean margins of comparables at 8.73%. In such scenario, the margins shown by assessee were at arm's length price of its domestic transactions and no adjustment is warranted in the hands of assessee. Accordin....