TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1671
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....shoes. During the year, the assessee had two business units. One unit was eligible for deduction under section 80-IC of the Income Tax Act, 1961 (hereinafter called "the Act') and the other unit was the non-eligible unit. It had its own tannery along with effluent treatment plant and also had around 140 retail outlets which had Pan India presence. The return of income for assessment year 2017-18 was filed declaring a total income of Rs. 94,32,14,140/- under the normal provisions of the Income Tax Act. The case of the assessee was selected for complete scrutiny assessment and, thereafter, during the course of assessment proceedings, reference under section 92CA(1) of the Act was made by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO). Thereafter the TPO issued show cause notice to the assessee on the issue of Specified Domestic Transactions (SDTs) entered into between the eligible and non- eligible units of the assessee. The assessee had adopted Internal Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM). The assessee was asked to show cause as to why transfer pricing adjustment should not be made to the total income of the assessee by recasti....
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....and gains of Eligible Business under section 80 IC of the Act and in making addition of Rs. 3,14,89,283/- to the income of the assessee company. 2. The learned Assessing Officer has erred in law and on facts in making addition of the total adjustment in arm's length price of Rs. 3,14,89,283/- to the total income of the assessee company instead of proportionate reducing the amount of deduction claimed by the assessee u/s 80IC of the Act which has been claimed at 30% of the profits of the eligible business as computed by the assessee. 3. The learned Assessing Officer has erred in law and on facts in making disallowance of Rs. 55,79,597/- in respect of late deposit of employee's contribution to provident fund although the contribution was paid before the due date of filing of return of income u/s 139(1) of the Act. 4. The appellant reserves the right to add to, alter or modify the above grounds before or during the hearing before the Hon'ble Tribunal so as to enable the Hon'ble Tribunal to decide on the grounds raised by the appellant as per law. 5. Any other relief which Hon'ble Tribunal may deem fit in the case. 2.4 In assessment year 2018-19, the return....
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....t and that assessment year 2017- 18 was the 9th year for claiming the deduction and assessment year 2018-19 was the 10th year for claiming such deduction. It was submitted that on manufacture being completed, the stocks are transferred to another unit in Noida which was Central Warehouse for the assessee and for such transfer, the assessee regularly employs internal TNMM for the purpose of determining the Arm's Length Price (ALP). The Ld. A.R. further submitted that the Department had been regularly accepting such internal TNMM and our attention was drawn to the orders of the TPO for assessment years 2014-15 and 2015-16 (placed in the paper book) and it was submitted that in these two assessment years no adjustments had been proposed by the TPO and that all the assessments till date had been completed under section 143(3) of the Act. The Ld. A.R. also drew our attention to the fact that operating margin was always within +/- 3% as per the Domestic Transfer Pricing Report (which has been placed at page 87 of the paper book) and, therefore, the transactions were undoubtedly at Arm's Length. 3.1 The Ld. A.R. further submitted that the TPO had applied external TNMM in an arbitrary man....
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....allegation by the TPO was not correct and the same was evident from the Segment Reporting forming part of Annual Report of the assessee placed at page 126 of the paper book and it was submitted that more than 33% of the sales of the non- eligible unit was in domestic market. 3.5 Thereafter, the Ld. A.R. drew our attention to a chart submitted with regard to the comparables selected by the TPO and submitted that the comparables selected by the TPO as external comparables were not applicable to the case of the assessee for the following reasons: 1 Kangaroo Leather Private Limited It was submitted that this Company was manufacturing on physical inputs owned by others and was mostly providing Leather Tanning and Dressing services, fur dressing and dyeing services, whereas the assessee was manufacturing for its own units and was not manufacturing any other products except Leather Shoes and, therefore, this Company could not be used as a comparable to the assessee-company. 2 Ace Exports Limited It was submitted that this Company was manufacturing waterproof footwear with outer soles and uppers of rubber/plastics and was not into manufacturing of Leather Shoes. 3 Hidesign India P....
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....jected and the internal TNMM adopted by the assessee-company should be accepted. The Ld. A.R. also placed reliance on a number of judicial precedents (placed in the paper book) to buttress his point as to why internal TNMM should not be rejected without specifying any concrete reason and why the same should be accepted in absence of any material change. 3.7 The Ld. A.R. submitted that likewise, in assessment year 2018-19 also an adjustment of Rs. 96,21,421/- was proposed by the TPO by adopting the same set of external comparables and the objections of the assessee were dismissed by the Hon'ble DRP on identical set of facts and, therefore, the arguments advanced by the Ld. A.R. in respect of assessment year 2017-18 above would apply equally in appeal for assessment year 2018-19 also. 3.8 With respect to the other addition under challenge that being the addition on account of late deposit of Employees' Contribution to ESI/EPF, being ground No.3 in assessment year 2017-18 and ground No.2 in assessment year 2018-19 were not being pressed. 4.0 In response, the Ld. Sr. D.R. submitted that the Hon'ble DRP had given very detailed reasons for rejecting the objections of the asses....
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....e Method. The Tribunal did not find any substance in any of the Transfer Pricing Officer's multiple arguments for rejection of assessee's intermal Cost Plus Method and adoption of external Transaction Net Margin Method. In other words, it was found by the Tribunal that the decision of the Transfer Pricing Officer was absolutely arbitrary and irrational and hence it set aside the order of the Transfer Pricing Officer. We do not find any element of law for consideration in these appeals." 5.2 In view of the above, we are of the considered view that the internal TNMM adopted by the assessee cannot be rejected as the Most Appropriate Method without assigning any reason. The SCN as well the order of the TPO are completely silent on the reason behind rejecting assessee's internal TNMM as MAM and applying external TNMM by selecting Ten Companies as comparables. 5.3 It is also to be noted that in the instant case, the two eligible units at Uttarakhand, in relation to which deduction under Section 80-IC of the Act has been claimed, were also in operation during past financial years and identical transactions had been undertaken during those past financial years also. Undisputedly,....
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....ome material change in facts." 5.6 The above view has been followed in the following orders of the Co-ordinate Benches of the Tribunal also: (1) Van Oord Dredging and Marine Contractor BV v. DCIT, Order dated 31.05.2019 passed in ITA No. 2029/Mum/2016. (2) Airport Retail P Ltd v. DCIT, Order dated 09.01.2019 passed in ITA No. 4816/Mum/2015. (3) Philips India Ltd. v. ACIT, Order dated 15.05.2019 passed in ITA No. 2600/Kol/2018. (4) Siemens Industry Software (India) Pvt Ltd v. DCIT, Order dated 28.01.2019 passed in ITA No. 318/Del/2015. (5) DCIT v. Bridal Jewellery Mfg. Co., Order dated 28.02.2019 passed in ITA No. 873/Del/2016. 5.7 In the present case, the assessee has compared the operating margin earned by the eligible unit and non-eligible unit of the assessee by applying internal TNMM. The said methodology adopted by the assessee has been summarily rejected by the TPO without assigning any reason. It may be noted that internal TNMM is a well-recognised methodology widely applied for the purposes of computing the Arm's Length Price. In the following judicial precedents, the Co-ordinate Benches of the Tribunal have accepted the adoption of internal TNMM as the Most....
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....ch was only engaged in manufacture of leather footwear (shoes). 4. M/s Lehar Footwears Limited As per the details made available by this company on its official website, this company was primarily engaged in the business of manufacture of synthetic chappals, sandels and footwear. Therefore, this company cannot be adopted as comparable to the eligible units of the assessee, which was only engaged in manufacture of leather footwear (shoes). 5. M/s Relaxo Footwears Limited As per the details made available by this company on its official website, this company was primarily engaged in the business of manufacture of hawai chappals. Therefore, this company cannot be adopted as comparable to the eligible units of the assessee, which was only engaged in manufacture of leather footwear (shoes). 6. M/s Condor Footwear (India) Limited As per the details made available by this company on its official website, this company was primarily engaged in the business of manufacture of synthetic sandels and slippers. Therefore, this company cannot be adopted as comparable to the eligible unit of the assessee, which was only engaged in manufacture of leather footwear (shoes). 7. M/s Finewear ....