TaxTMI 
TaxTMI 
2021 (2) TMI 1320
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....nd circumstances of the case and in law, the Ld. CIT(A) has erred in treating the comparable Alta Moda as non-comparable although it is a robust comparable in the case of assessee and thereby deleting TP addition of Rs.7,24,81,076/-. 3. On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting bills and vouchers which the assessee had failed to submit during transfer pricing proceedings and also erred in deleting TP adjustment of Rs.5,32,25,677/- in this respect. 4. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. 2. Briefly stated facts of the case are that the assessee is engaged in importing and selling of products of brand namely "Hermes", in the Indian market. In relevant year under consideration, the assessee sold products through its own store located at 'Oberoi Hotel', New Delhi. The assessee filed return of income for the year under consideration on 30/09/2009, declaring loss of Rs.99,85,343/-. The return of income filed by the assessee was selected for scrutiny assessment and accordingly statutory notices under the Income-tax Act, 1961 (in short 'the Act') were issued and....
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....Officer for his comments, and the learned AO/TPO not only objected to admissibility of those evidences only, but also given comments on merit of the addition and thus there is due compliance of the decision of Hon'ble High Court in the case of Manish Buildwell P. Ltd. (supra). As far as eligibility under Rule 46A of the Rules is concerned, the learned Counsel referred to page 76 to 120 of the paper-book and submitted that query regarding the comparable company M/s Alta Moda was made on 28/01/2013 by the learned TPO i.e. one day before passing of transfer pricing order and thus no sufficient opportunity was provided by the TPO. He Submitted that the Assessing Officer/learned TPO made the order without providing sufficient opportunity to the assessee for producing evidences and therefore in terms of Rule 46A(1)(d) of Rules, the assessee is eligible for producing additional evidences before the Ld. CIT(A). He submitted that in remand proceedings, the Ld. TPO has commented on the issue of selection of comparable, namely, Alta Moda. He further submitted that the Ld. CIT(A) has already analyzed the additional evidences and complied with the decision of Hon'ble High Court in the case of J....
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....4/455 dated 19.11.2013. In response to it, the TPO has submitted the remand report F.No. DDIT/TPO I(5)/2013-14/175 dated 14/02/2014 as discussed above. Considering the facts of the case, I am of the opinion that the TPO has passed the order u/s 92CA(3) without giving sufficient opportunity to the appellant to adduce evidence and the present case falls within the ambit of the exceptional circumstances as specified in Rule 46A(l)(d). In view of the above, I hold that the additional evidence is required to be admitted as per the provision of Rule 46A and also in the interest of justice. Therefore, the additional evidences are admitted in this case." 4.3 On perusal of the order sheet of transfer pricing proceedings, it is undisputed that query regarding the comparable M/s Alta Moda was made only one day prior to the passing of the order by the Ld. TPO and thus it is evident that no sufficient opportunity was provided to the assessee to adduce evidence in support to challenge of the comparable, namely, M/s Alta Moda. Thus, we do not find any error in the finding of the Ld. CIT(A) that the assessee is eligible for filing additional evidences under Rule 46A(1)(d) of the Rules. 4.4 Howe....
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.... and thereafter contend that the evidence should be accepted and taken on record by the CIT(A) by virtue of his powers of enquiry under sub-s. (4) of s. 250. This would mean in turn that the requirement of recording reasons for admitting the additional evidence, the requirement of examining whether the conditions for admitting the additional evidence are satisfied, the requirement that the AO should be allowed a reasonable opportunity of examining the evidence etc. can be thrown to the winds, a position which is wholly unacceptable and may result in unacceptable and unjust consequences. The fundamental rule which is valid in all branches of law, including IT Law, is that the assessee should adduce the entire evidence in his possession at the earliest point of time. This ensures full, fair and detailed enquiry and verification. A seven-Judge Bench of the Supreme Court in Keshav Mills Co. Ltd. vs. CIT (1965) 56 ITR 365 (SC) had observed as under: "Proceedings taken for the recovery of tax under the provisions of the Act are naturally intended to be over without unnecessary delay, and so, it is the duty of the parties, both the Department and the assessee, to lead all their evidenc....
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....nce produced by the appellant. (4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty [whether on his own motion or on the request of the Assessing Officerunder cl. (a) of sub-s. (1) of s. 251 or the imposition of penalty under s. 271." We are highlighting these aspects only to press home the point that the conditions prescribed in r. 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the rule has to be strictly complied with so that the rule is meaningfully exercised and not exercised in a routine or cursory manner. A distinction should be recognized and maintained between a case where the assessee invokes r. 46A to adduce additional evidence before the CIT(A) and a case where the CIT(A), without being prompted by the assessee, while dealing with the appeal, considers it fit to cause or make a further enquiry by virtue of ....
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.... of r. 46A is erroneous. The Tribunal appears to have not appreciated the distinction between the two provisions. If the view of the Tribunal is accepted, it would make r. 46A otiose and it would open up the possibility of the assessees' contending that any additional evidence sought to be introduced by them before the CIT(A) cannot be subjected to the conditions prescribed in r. 46A because in any case the CIT(A) is vested with coterminous powers over the assessment orders or powers of independent enquiry under sub-s. (4) of s. 250. That is a consequence which cannot at all be countenanced. (emphasis supplied externally)" 4.5 The assessee has produced additional evidence before the Ld. CIT(A), which were forwarded to the Learned TPO. The Ld. CIT(A) in the impugned order has reproduced the comment of the TPO on the issue of selection of comparable M/s Alta Moda and reimbursement of expenses. The objection of the TPO on the issue of selection of M/s Alta Moda is extracted as under: "Comments of the TPO: In the Annual Report of the Alta Moda Garments, although it is mentioned at one place that assessee is in business of construction, but in the same breath in Director's Rep....
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....e assessee chose Resale Price method (RPM) as the most appropriate method and taking the assessee as tested party, compared gross profit margin (45.11%) of the assessee with the average margin comparables including, foreign comparables companies. The learned TPO rejected the comparable selected by the assessee and selected comparable, namely, M/s. Alta Moda having gross profit ratio of 72.30%. The learned TPO accordingly proposed an adjustment of Rs. 7,24,81,076/- to the international transaction of purchase of traded goods. The Learned CIT(A) rejected the comparable M/s. Alta Moda observing as under: "4.3.3 The appellant has submitted the following chart showing the cost of sales to sales ratio of M/s Alta Moda Garments Limited for F. Y. 2009-2010 and F. Y. 2008-2009. "Cost of sales to sales ratio of M/s Alta Moda Garments Limited is 1:6 in 2009 whereas it is 1:3 in next year 2010 i.e., drastic fall in Cost of Goods Sold (COGS) ratio as compared to the ratio with first year. Comparable calculation of the same for the F.Y.2008-2009 & F.Y.2009-2010 is detailed below for your reference. Particulars F. Y. 2009-2010 F. Y. 2008-2009 Revenue &....
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....tements of Alta Moda Garments Limited for the F.Y. 2008-09 were not available in public domain till 30th November 2009 as the financials were audited & signed by the statutory auditors on 02.12.2009 and the Annual General Meeting (AGM) of the company was held on 29th December, 2009. In the present case, the appellant has completed its transfer pricing study on 19th September 2009 and based on that had filed the report in form 3CEB on 29th September 2009, The P & L A/c of Alta Moda Garments reveals that an amount of Rs.7,06,745/- has been debited as custom duty separately, which has not been included in purchases for the purpose of computing G.P. The appellant has further submitted that in the case of the appellant company, the custom duty of Rs.2,51,75,641 is included in purchases for the purposes of determining the GP. The appellant has argued that for the purpose of making the GP of the appellant company comparable with M/s Alta Moda Garments, percentage of custom duty i.e. 36.51% should be added to the GP margin of 45.11% declared by the appellant company. Thus the adjusted G.P. margin comes to 81.62%, which is higher than the GP margin of comparable company, Alta Moda Garments ....
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....entioned as under: "Principal activity the company is primarily engaged to carry on the business of trading in high fashion garments of various Italian Branson different kinds of ornaments, leather items, assessee is etc." 5.8 In view of the above, in our opinion, the remark of business of construction may be with reference to construction of the store, however, for verifying this fact beyond doubt, we feel it appropriate to set aside the finding of the Learned CIT(A) on the issue in dispute and restore the matter back to the AO/TPO for ascertaining the functions of the company during relevant year from the company itself using authority under section 133(6) of the Act. 5.9 Regarding the issue as to whether the company is in retailing through its own shop or though 'Franchise' model is concerned, on perusal of chart of financial statement of the company for financial year 2008-09 (i.e. assessment year under consideration) available in impugned order, we find that in financial year 2008-09, no franchise commission has been shown as received. Further, on page 183 of the paperbook-1, in Director's Report, under the head 'review of the operations' it is mentioned as under: "Al....
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....ll as in the comparable company treatment of the custom duty has to be given in the similar manner. If the custom duty is part of the trading account then same is to be treated in identical manner while computing the gross profit margin of the company as well as the assessee. Since we have already rendered the issue of verifying the function of the company to the Ld AO/TPO, so if the company is found to functionally similar to the assessee, the Ld AO/TPO, shall compute the margin of the company in view of our direction above. 5.13 The ground No. 2 of the appeal of the Revenue is accordingly allowed for the statistical purposes. 6. In ground No. 3, the Revenue has challenged adjustment of Rs. 5,32,25,677/- made to the international transaction of reimbursement of expenses to Associated Enterprises (AEs). 6.1 The facts in brief qua the issue in dispute are that the assessee has shown reimbursement of expenses paid at Rs.8,78,87,042/-, towards cost reimbursement to its AEs. According to the assessee, these expenses were incurred by the Associated Enterprises towards third parties, which have been reimbursed by the assessee on the cost to cost basis. In view of the assessee, these i....
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....by the TPO vide show cause notice dated 17/01/2013, which was received by the appellant through email on 19/01/2013. Due to paucity of time, the appellant had submitted sample invoices of the transactions before the TPO on 25/01/2013. The TPO vide her order dated 29/1/2013 u/s 92CA(3) had disallowed the amount of Rs.5,32,25,677 out of the total reimbursement expenses of Rs.8,78,87,042 to its AE. The remaining amount of Rs.3,46,61,365/- had been allowed by the TPO. The said amount of Rs.5,32,25,677/- had been disallowed by the TPO on the ground that documents submitted by the appellant company were inadequate and the need for such of expenditure shown to be incurred by AEs had not been established. The reimbursement expenditure consists of (i) The Leasehold Improvement of Rs 53,810,549/-, (ii) Purchase of Rs 22,355,686/-, (iii) Administrative, Selling & Other Expenses of Rs 4,749,927/-, (iv) Fixed Rent & Rates of Rs 3,810,585/-, (v) Communication Expenses of Rs 1,785,665/-, (vi) Furniture & Fixtures of Rs 762,920/-, (vii) Wages & Allowances of Rs 566,830/-, (viii) Miscellaneous Expenses of Rs 4,539/- and (x) Computers of s 40,500/-. The appellant has also stated that all the relevan....
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.... premises had been provided to it by the Hotel. For this purpose and due to paucity of funds, the AE(s) had paid to various third parties on behalf of the appellant company, which was duly reimbursed to the AEs on cost to cost basis without any mark-up or any element of profit. The TPO has disallowed the amount of Rs 5,32,25,677/- out of the total reimbursement of Rs 8,78,87,042/- on the ground that the appellant did not submit the full details. During the course of the appellate proceedings the appellant has submitted Paper Book-4 and Paper Book-1 containing the copies of all the invoices with respect to reimbursement of expenses. I have perused the details submitted by the appellant company. In the present case, the AEs which had made payments to third parties on behalf of the appellant company due to paucity of funds in the initial year of operation were duly reimbursed by the appellant company on cost to cost basis without any mark-up. Considering the facts of the case I am of the view that the TPO has wrongly determined the TP adjustment of Rs.5,32,25,677/- out of reimbursement expenses of Rs.8,78,87,042/- paid to its AE. Accordingly, the AO/TPO is directed to delete the addit....