TaxTMI 
TaxTMI 
2016 (10) TMI 1386
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.... in arm's length price. 2) Entire Transfer Pricing order is based on the false understanding of TP laws and regulations as applicable in India. 3) Ld Dispute Resolution Panel, Id AO and Id TPO erred in eliminating loss making companies from the comparables and has recomputed the average gross mark-up by using only heavy profit making companies. The Id. TPO has not adopted any scientific methodology in selecting the comparables and in determination of arm's length margin. 4) The Ld. AO has not followed the directions given by the Ld. Dispute Resolution Panel w.r.t. to the selection of certain companies which were not incurring persistent losses. The Ld, AO has finalized the draft assessment order without considering the above directions. 5) Ld AO erred in not rectifying factual inaccuracies as apparent on face of the record, in the computation of average gross margin of comparables and the appellant co. 6) Ld AO erred in charging consequential interest and initiating penalty proceedings." 3. During the course of hearing, the appellant raised additional grounds of appeal vide application dated 27/07/2016 where 5 grounds are rais....
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....involves the investigation of the fresh facts. 5. We have carefully considered the rival contentions. Only because the Ld. that authorized representative of the appellant has submitted that these grounds are only arguments with respect to ground No. 1 of the appeal of the appellant and same not disputed by the ld DR and as he could not point out what fresh facts needs to be investigated, same are admitted and adjudicated separately. 6. The appellant is a private limited company engaged in the business of manufacture and export of ready-made garments and home furnishing items. This company sells merchandise to the associated enterprise and other group companies of Cornell trading group. The appellant filed its return of income on 29.11.2006 declaring a loss of 28875663/ -. During the year the assessee has entered into international transaction with its associated enterprises and therefore reference was made to the Ld. transfer pricing officer to determine the arm's length price of the international transaction of export of ready-made garments of Rs. 162465043/-. The appellant in its transfer pricing study report has bench marked this transaction applying the cost plus method a....
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.... was with respect to the margin of the tested party which was computed by the ld TPO at 6.02% as against the assessee's claim of 18.23%, it was held that the action of the Ld. transfer pricing officer needs no deviation and is therefore upheld. Consequently, the adjustment to the arm's length price of the international transaction to the extent of Rs. 280,09155/- was once again made. 7. The 1st ground of appeal of the assessee is against not considering the loss of Rs. 2 407 9629 as the abnormal cost of consumption of raw material for the purpose of calculation of normal gross profit markup over cost. According to the appellant, abnormal losses purely during the course of normal manufacturing operations and does not constitute and not attributable to any international transaction between the assessee and its associated enterprise. Accordingly, appellant has submitted that this disallowance of Rs. 2 80, 09153/- has resulted in to difference in arm's length prices. Mainly the difference has arisen because of the computation of profit level indicator at 18.23% by the assessee and computed by the Ld. TPO at 6.02%. There is no difference between the value of the sales determined by t....
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....submitted that while calculating the PLI of the assessee the above cost needs to be removed. To support his contention he submitted that according to the rule 10 C which deals with the methodology to be applied in applying the cost plus method, the amount of normal gross profit is required to be computed and same is comparable. Therefore, his submission was that that the above loss on the valuation of inventory is an abnormal expenditure charged to the profit and loss account which needs to be excluded. It was further the submission of the Ld. authorized representative that the Ld. Transfer pricing officer has failed to consider the difference between the TNMM method and the cost plus method. To buttress his claim, He further relied upon the decision of the assistant Commissioner of income tax versus MSS India private limited [32 SOT 132 (Pune)] . He further submitted that the contention of the Ld. Transfer pricing officer that the loss incurred by the appellant on account of diminution in value of the inventory should have been recovered from the associated enterprises is also against the accepted business practices. He further submitted that the trend of the raw material consumpt....
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....onditions and functions performed. We agree with the contention of the appellant that if the costs which are not related to sale of the goods which are exported same cannot be considered as the direct cost/ indirect cost while working out the normal gross profit of the appellant. Therefore, in nutshell, if there are extraordinary costs which are beyond the control of the assessee and which are not related to the sale of the goods, then such costs are required to be excluded. We also draw support from the safe harbour rules wherein it provides that operating expenses means the cost incurred in the previous year by the assessee in relation to the international transaction during the course of its normal operations, including depreciation and amortisation expenses relating to the assets used by the assessee, but it does not include extraordinary expenses. The contention of the assessee is that it has incurred an extraordinary expenditure by valuation of the inventory which was for a specific product and to a specific customer orders which were cancelled and therefore the inventory of finished goods and semi finished goods with respect to that order was written off. However, on looking....
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....e included in the cost for working PLI of the assessee, but assessee has prove first about the actual loss incurred leading concrete evidences. In view of this, we set aside this issue to the file of the Ld. transfer pricing officer/assessing officer to examine with respect to quantity, price and quality or specification of the material revalued with respect to the material which was purchased or designed by the assessee specifically for that buyer who cancelled the orders and gone bankrupt. The appellant is also directed to furnish all this information to justify its claim and also to show the nature and extent of extraordinary loss incurred by the assessee with evidences. In view of this ground No. 1 and 2 of the original grounds of appeal and ground No. 1, 2 and ground No. 3 of the additional grounds raised by the assessee are disposed of accordingly. 11. Ground No. 4 of the appeal was with respect to the directions given by the Ld. Dispute resolution panel with respect to the selection of certain companies which were incurring persistent losses. The Ld. assessing officer in draft assessment order without considering the about direction of the Ld. dispute resolution panel has....