TaxTMI 
TaxTMI 
2021 (2) TMI 264
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....m products. Assessee electronically filed its return of income for A.Y. 2012-13 on 30.09.2012 declaring loss of Rs. 10,89,39,514/-. The case was selected for scrutiny and notice u/s 143(2) dated 20.09.2013 was issued and served upon the assessee. Thereafter, notice u/s 142(1) along with questionnaire was issued and served on the assessee. AO has noted that during the year assessee entered international transactions with its AEs and accordingly made reference to TPO u/s 92CA(3) to determine the arm's length price of the International transactions. The TPO vide order dated 20.01.2016 passed u/s 92CA(3) proposed adjustment of Rs. 1,73,97,217/- to the income of the assessee on account of international transactions. After considering the adjustment proposed by TPO, AO in the Draft Assessment Order dated 16.03.2016 proposed addition of Rs. 1,73,97,217/-. The assessee filed objections against the proposed addition before the Hon'ble DRP who vide order dated 19.12.2016 upheld the adjustment proposed by TPO/AO. Thereafter, AO passed an order u/s 143(3)/144C/92CA(4) vide order dated 31.01.2017 and determined the total income at Rs. 75,60,413/-. Aggrieved by the order of AO, pursuant to th....
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....e year. 3.2 That the DRP/AO erred on facts and in law in making an adhoc disallowance of Rs. 9,91,02,710/- allegedly holding that the appellant fails to furnish details of foreign exchange fluctuation and valuation of closing stock. 3.3 That the DRP/ AO erred on facts and in law in not considering reply dated 19.12.2016 duly placed on record with approval of the Hon'bel Panel, alledgly holding that no details were filed by the appellant till the end of the time given, i.e. 11 am on 19.12.2016. 3.4 That the DRP/ AO erred on facts and in law in holding that the appellant was taking value of some of the items including closing stock at NIL without any basis and thereby postponing the tax liability. 3.5 That the AO erred on facts and in law in not giving effect to the directions of the DRP and thereby disallowing crystallized foreign exchange loss. 3.6 That the DRP/AO erred on facts and in law in making an adhoc disallowance of Rs. 9,91,02,710/- being 125% of the foreign exchange loss incurred during the year, without binging specific material on record. 3.7 That the DRP/AO erred on facts and in law in disallowing foreign exchange l....
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....ocumentation, the assessee had inadvertently stated that TNMM was being applied for the purpose of benchmarking the international transactions but the assessee had considered Gross Profit to Sales ratio as the PLI which establishes the fact that in reality the Resale Price Method ('RPM') was applied by the Assessee to benchmark the international transactions. It was further submitted by the assessee that the Gross Profit margin of the assessee was compared with weighted average gross profit margin of the comparable and since its Gross Profit margin was higher than the weighted average gross profit margin of the comparable companies, the international transactions were considered to be at arm's length price and no adjustment was called for. The submissions of the assessee were not found acceptable to the TPO. TPO thereafter, after considering the comparables (stated in Para-9 of Page 21 of his order) noted that average OP/OR of the comparables to be 1.88% and applying it to the purchase (Rs. 18,43,93,983) and sale of goods (Rs. 7,95,17,520) worked out the difference at Rs. 1,73,97,217/- and proposed its addition. When the matter was carried before the DRP, the DRP upheld the order o....
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.... arm's length price of an international transaction shall be determined by any of method being the most appropriate method having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons. He submitted that Rule 10B(1)(b) of the Income-tax Rules provides that for application of Resale Price Method as one of the method and that method is applicable in the situation involving the benchmarking of international transactions relating to purchase and sale of finished goods. He submitted that since there is a specific method specified in Rule 10B for determining the arm's length price of international transactions of resale of the goods, the same should be applied in preference over the other methods and in support of aforesaid contentions he placed reliance on the decision of Hon'ble Apex Court in the case of Britannia Industries Ltd reported in 278 ITR 546 and in the case of New Okhla Industrial Development Authority vs CCIT reported in [2018] 95 taxmann.com 58 (SC). He further submitted that the Institute of Chartered Accountants of India in its Guidance note on Report under Section 92E of the Income Tax Act, 1961,....
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....functionally comparable to the assessee and are engaged in the business of trading similar telecom network equipments, except for Essel Shyam Technologies Limited. He submitted that even if all the companies selected by the TPO are to be considered as appropriate comparable companies, the gross profit margin over sales of the above companies works out to 6.93% as against the gross profit margin of 5.9%. He further submitted and even if Essel Shyam Technologies Limited is excluded, the gross profit margin over sales of the comparable companies work out to 3.26% and even in that situation, the gross profit to sales margin of the assessee at 5.9% is higher or within the range of +/-5% of the margin of companies and therefore no addition is called for. He therefore submitted that no adjustment on account of international transaction is called for. He further submitted that the assessee has applied RPM method in AY 2011-12 and no adjustment to the international transaction was made by the TPO in the order framed u/s 92CA(3) dated 14.01.2015. He pointed to the copy of the order placed at page 243 to 244 of the paper book. 11. Learned DR on the other hand supported the order of lower a....
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....s the products from its AE's and resales the same without any further value addition or further processing than RPM is the most appropriate method for determination of ALP of international transactions for which reference can be made to the decision of H'ble Delhi High Court in the case of Matrix Cellular International Services P Ltd (90 Taxmann.com 54), Delhi Bench of Tribunal in case of Swarovski India Pvt. Ltd. Vs ACIT [(2017) 78 taxmann.com 325 (Del)], Mumbai Tribunal in the case of Mattel Toys India P Ltd Vs DCIT [(2013) 34 Taxmann.com 203], Delhi Tribunal in the case of Nokia (India) Pvt. Ltd.(ITA No.242/Del/2010) and Videojet Technologies (I) P Ltd Vs ACIT (ITA No 6956/Mum/2012). 17. We further find that the Pune Benches of the Tribunal in the case of ACIT vs MSS India Pvt Ltd ((2009) 123 TTJ 657 (Pune) has observed as under: "While there is no particular order or priority of methods which the assessee must follow, and no method can invariability be considered to be more reliable than others, on a conceptual note, transactional profit methods (i.e. Transactional Net Margin Method and Profit Split Method) are treated as methods of last resort which a....
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....assessee had claimed foreign exchange fluctuation loss of Rs. 7,92,82,168/- in the Profit and Loss account. The assessee was asked to justify the same. The submissions made by the were not found acceptable to AO. AO also noted that assessee has also claimed depletion in the value of closing stock amounting to Rs. 11,22,64,093/-. AO noted that the reduction in value of inventory was more than 70% of the value and amounts sought to be depleted had been purchased mainly from Radio Frequency System Hongkong or Radio Frequency System France, its associated companies. He also noted that the purchases were made during the year itself and it was not clear as to how there could be a depletion in the value of stock which has been purchased recently to the extent of 70% of the value. He also noted that though the value of stock was reduced but assessee had not adjusted the amount payable towards the group companies. He thus concluded that by not raising debit notes on the suppliers, doubt arises about the genuineness of the accounts and its correctness. He therefore held that the company has booked huge losses on reinstatement of the accounts of the associated concerns without any justificati....