2018 (4) TMI 1816

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....e order dated 31.01.2012 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act'). 2. The only issue in this appeal of Revenue is against the order of CIT(A) in directing the AO / TPO to re-compute the Transfer Pricing adjustment with regard to international transactions only. For this Revenue has raised the following three grounds:- "ii On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing, the AO / TPO to recompute the transfer pricing adjustment in accordance with the directions of the ITAT in the assessee's case for AY 2004-05. ii. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating that the TPO has....

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.....Y. 2004-05 had held that any Transfer Pricing adjustment should be restricted to the value of international transaction alone, merely because the AO had appealed against the order of the ITAT before the High Court, applied the difference in net margins of the assesse vis-à-vis comparable companies to the total cost incurred by the assessee in the order dated 17/10/2001, the TPO held as under:- "It can be observed that the PLI margin of comparables at 6.18% is higher than that of the assessee at 4.97%. it may be mentioned here that the Hon'ble ITAT in the assessee's own case for A.Y. 2004-05 held that entity level PLI should be adopted for AE transactions alone and not for the total cost of the AE and non-AE sales. H....

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....cing Adjustment should be restricted to the value of international transaction alone. In holding so, the Tribunal observed as under: "13. We have considered the rival submissions carefully. We partially agree with the submissions of the Id. counsel for the assessee that original TPOs order is definitely erroneous because he has applied the net profit margin of 7.25% on the gross sales and followed a complicated procedure to arrive at the amount of adjustment. In simple terms if the sales to Associated Enterprises is taken at Rs. 25 crores and straightway 7.25% margin is applied then approximately total margin would be Rs. 1.81 crores whereas adjustment has been made at Rs. 2,57,26,138/-. At the same time, we are unable to agree wit....

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.... international transaction alone. 7. Similarly, identical issue arose in the case of the assessee for A.Y. 2006-07. The ITAT allowed the appeal of the assessee by giving following reasoning:- "7. The second objection taken by the Id. AR is about the application of the average margin of comparables to the figures of entity as a whole instead of transaction with the AEs. After considering the rival submissions and perusing relevant material on record it is seen that Chapter-X of the Act contains special provisions relating avoidance of tax. Section 92, which is the substantive section of the Chapter, provides that 'Any income arising from an international transaction shall he computed having regard to the arm's length pric....