TaxTMI 
TaxTMI 
2021 (5) TMI 100
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....) of Rule 10D(1), that have been specifically invoked by the TPO. (iii) The Ld. CIT(A) erred in holding that there was reasonable cause for non-compliance of Section 92D read with Rule 10D(1) without specifying the cause of such non-compliance or demonstrating how the same was reasonable. (iv) Whether the Ld. CIT(A) was correct in ignoring the ratio laid down in the decision of the Hon'ble High Court in the case of M/s. Shatrunjay Diamonds (261 ITR 258) holding that the initial burden was cast upon the assessee? (v) The Ld. CIT(A) erred in deleting the penalty for the reason that no adjustment was made to the ALP, failing to note that by not producing the material documents necessary to determine the ALP under any of the prescribed methods u/s 92C(1) of the Act, the assessee effectively prevented the TPO to make any determination as recorded by the TPO in the order u/s. 92CA (3) of the Act. (vi) The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO be restored." 3. Brief facts of the case are that :- The assessee is engaged in the business of import of rough diamonds, manufacturing the same into polished diamonds, an....
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....lied, for determination of arm's length puce, in the manner as may be prescribed: 7. Rule 10B describes the five methods for determination of arms length price for international transaction as per section 92C of income Tax Act,1961. in the instant case, the assessee has himself selected TNMM as most appropriate method for the purpose of benchmarking its international transaction. TNMM method is prescribed under Rule 10B(1)(e) as under: (e) transactional net margin method, by which, - (i) the net profit margin realised by the enterprise from fin international transaction 55c [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) The net profit margin referred to In sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if ....
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....s relied on the ratio of Azetec Software & Technology Services Ltd. [2007] 107 ITD 141(Bang)(SB) and OECD TP guidelines and has held that the international transaction have to be evaluated, on standalone basis and then compared with similar analysis undertaken on independent transactions. Comparison of the operating profit of the taxpayer as a whole, with the overall operating profits of certain other companies, without any adjustments would not satisfy the requirements of evaluating an international transaction The ITAT therefore concluded that the taxpayer was in error in comparing the operational margin ac entity level and such an approach was rejected. That the decision in the case of UCB India vs. ACIT 317 ITR 292 (AT)/121 ND 131(Mum) has been followed by the Hon'ble Bangalore bench of ITAT in the case of Toyota Kirloskar Auto Parts P. Ltd. reported in 52Taxmann 171 (Bangalore Trib) (2014) on the issue of royalty. 8. Hence the Assessing Officer opined that accordingly even if the TPO made adjustments by using the entity level margins the same will not stand the test of Rule 10B(1)(e) of IT Rules. 10. That with this background in mind, the TPO vide questionnaire issued al....
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....therefore, the separate segmental results in assessee's transactions with AE and non-AE are a must. That because in combined entity level margins the loss in transactions with AE segment can be easily set off with the profits with non-AE segment, in such a situation the benchmarking will not be correct. That there is no way by which correct benchmarking can be done unless and until the assessee submits the correct margins in respect of transactions with AE and non-AE. That non-furnishing of data in this regard can make the whole exercise of benchmarking the transactions futile. 11. The Assessing Officer found that during the course of transfer pricing proceedings, it was found by the TPO that the assessee had not maintained proper documentation to apply the TNM method, CUP method or any other prescribed methods. II was also seen that the assessee had both AE and non- AE transactions during the year, but no separate profitability or AE transaction and non-AE transaction had been maintained. Similarly, the qualitative details of AE and non-AE transactions have not been maintained so that CUP method could be applied. Hence, the TPO was constrained from benchmarking the transactio....
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....nternational transaction 56(or specified domestic transaction] ; (i) (j) (k) (l) (m) any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the arm's length price 10D(2)......... (3) The information specified in [sub-rules (1) and (2A)] shall be supported by authentic documents, which may include the following : a) official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country; b) reports of market research studies carried out and technical publications brought out by institutions of national or international repute; c) price publications including stock exchange and commodity market quotations; d) published accounts and financial statements relating to the business affairs of the associated enterprises; e) agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions [or the specified domestic transactions, as the case may be]; f) letters and other correspondenc....
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....ualities of diamonds The price of a diamond depend on various factors such as shine, luster, Size, color, clarity, purity, cluster; cartage, etc. In fact, no two diamonds can have same price as valuation also depends upon the perception of individual businessman. 16. The Assessing Officer observed that the above purports that normally there are no comparable; pieces and price of diamonds. Also at each stage in diamond business i.e. from mine owners to distributors to manufacturer/exporter and ultimately to customer or distributor of polished diamonds, the goods are assorted-re-assorted, mixed- remixed quite number of times and hence each piece of diamond loses its identity as to the source" 17. The Assessing Officer held that by giving the above reasoning, the assessee ha a failed to comply with the clause (9) of Rule 10D(1) that mandatorily requires maintenance of comparable third party transactions that may be of relevance to determining the arms length price of international transactions. 18. The Assessing Officer reiterated that under clause (h) of Rule 10D(1), the assessee is required to maintain a record of the analysis performed to evaluate comparability of uncontrolled t....
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....15 on the subject is enclosed and the same is self explanatory vis-a-vis the business, product, records, profitability, consistency and the difficulties etc. In our case, AE, non-AE segmental accounts on rational and recognized basis were duly filed and it seems that same are overlooked while initiating penalty proceedings. We have to re-request you to consider the following submission already duly made during JP assessment before levying any penalty." 22. Thereafter the Assessing Officer proceeded to reject the assessee's contention and passed a very elaborate order inter alia relying upon Hon'ble Bombay High Court decision in The Commissioner of Income Tax vs. Shatrunjay Diamonds 261 ITR 258. 23. The Assessing Officer concluded that the TPO has called for specific details pertaining to segmental profitability between AE and non-AE segments within the meaning of section 92D(3) of the income tax Act, 1961. The details were called for during transfer pricing proceedings and assessee was given opportunity to submit the same but the same was not furnished within 30 days or even till passing of transfer pricing order or at any time subsequently. The details were essential for ....