TaxTMI 
TaxTMI 
2012 (5) TMI 882
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....od to determine the price as Arms Length Price (ALP). This has been considered most appropriated method for determination of the ALP by the department in all subsequent assessment years. The facts and circumstances of the appellant case suggest that TNMM is the only method and the most appropriate method to arrive at ALP and hence there is no need to make deviation from the declared result of profit. 3. Facts of the case, in brief, as emerged from the corresponding assessment order passed u/s. 143(3) of the Act dated 15.3.2005 were that the assessee is in the business of providing design, project management, installation, commissioning. It was noticed that there was fall in the gross profit from 41.87%, profit of the preceding year, to 23.96%, profit for the year under consideration. An another fact has also been noted by the AO that the cost of material consumed had increased during the year under consideration. For the year under consideration, cost of material consumed was 85% of the value of finished goods produced, as against the percentage of cost of material consumed at 82.37% in the F.Y. 2000-01 and 80.28% during the F.Y. 2002-03. Third point which was noted by the AO wa....
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....essee as to why these two companies be not treated as un-comparable and should be excluded while computing the net operation profit margin. On one hand, the Auditor has taken the weighted average of net profit margin, however as against that, the AO has proposed for applying simple average method for computing net profit margin. The assessee has adopted the net operating profit margin at 3.9%, however, as against that, the AO has proposed that the net operating profit margin be adopted at 5.38% by invoking the provisions of section 92C(3)(c) of IT Act. The assessee's reply was that the calculation of the TNMM was made as per Rule 10B of IT Rules. About fall in Gross Profit, the assessee has submitted that the cost of consumption had gone up during the year under consideration. For the year under consideration, the cost of consumption was 64.64% as compared to the percentage of consumption in A.Ys. 2000-01 and 2001-02 respectively at 50.21% and 49.29%. On that point, the observation of the AO was that there was certain increase, about 25%, in the cost of consumption of component solely purchased from AE. The AO has taken into consideration the profit margin only in respect of the tw....
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.... 3.79 Raunaq International Ltd. 11.16 3.15 6.61 6.97 TOTAL 5.38 4.11. Therefore in view of the above observations and facts, the net operating profit margin of 3.9% adopted by assessee for arriving at Arm's Length Price is rejected and the net operating profit margin of 5.38% invoking the provisions of section 92C(3)(c) of IT Act is being adopted. The difference comes out to be Rs. 24,74,800/-. Assessee has paid excess amount to the extent of Rs. 24,74,800/- on purchase made from A.E. The total purchase from A.E. is of Rs. 4.6 crores and the variance is more than 5% of the purchases from A.E. Therefore, addition of Rs. 24,74,800/- is made to the assessee's income. Penalty proceedings under section 271(1)(c) is separately initiated. (Addition Rs. 24,74,800/-)" 4. When the matter reached before the ld.CIT(A), it was contested that there was a shift in the business and the business segment of metering (MET) was more than the Terminal Automation(TA). A comparative figures of TA business and MET business, year-wise was explained to the AO. It was further explained that during the....
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.... regard it has been pointed out that from out of the total material purchased of Rs. 16.24 crores material worth of Rs. 4.6 crores has been purchased from AEs. Therefore, it is to be seen if the ALP has been determined correctly or that there is a ground for determining the same by invoking the provisions of sec. 92C(3)(c) of the Act as done by the Assessing Officer. In this context, it is observed that the material objection raised by the appellant was that the exclusion of certain companies form the comparable sample adopted by the auditors should be done on a uniform basis. This objection was fairly accepted by the Assessing Officer by excluding both, the companies with comparative higher turnover as well as with lower turnover. In that sense, the Assessing Officer's approach is found to be judicious. It is further noted that the appellant has had no objection to the adoption of Rule 10B since in its reply dated 10-3-2005 before the Assessing Officer it stated that it had adopted the transactional net margin method for computing the ALP which was as per Rule 10B of the IT rules. In these circumstances, the appellant has no reason for objection to the adoption of the net pro....
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....lso not been disturbed. The ALP of the transactions as reported by the assessee were therefore accepted in both those assessment years. In view of this, it was vehemently contested that once the TPO himself has accepted the profit margin as disclosed by the assessee in respect of the impugned transaction, therefore there was no scope left for the Revenue to reject the accepted principle of TNMM Method and the net profit margin adopted. The arm's length result under this TNMM method is determined by reference to net profit margin of a comparable transaction under comparable circumstances. The profitability (profit level indicators) derived from uncontrolled party engaged in similar business activity under similar circumstances, is the measure of arm's length result. Several factors are required to be considered. It is computed in relation to costs (computed as direct cost of an output of product or services, i.e., material and labour, and production overhead), sales (amount of total receipts from the sale of goods and provision of services, less returns and allowances) or assets [any owned physical object (tangible) or right (intangible) having economic value of its owner; an item o....
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.... material in possession of the AO, there was no reason to reject the assessee's comparable instances, hence according to us, both AO & CIT (A) have gone wrong in arriving at a higher margin profit. We therefore hold that the adjustment was unwarranted, hence hereby directed to delete the same. [B] Revenue's appeal, ITA No. 3811/Ahd/2007 6. Ground Nos. 1 & 2 raised before us are reproduced below:- 1. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in allowing the claim for deduction of Rs. 52.35 lacs u/s. 36(1)(vii) as bad debt, despite the fact that the assessee was pursuing the matter of recovery through arbitration proceedings, clearly evidencing lack of honest conviction on its part regarding impossibility of collection, which rendered the debt as not a bad debt as per test laid down in the case of South India Surgical Col. Ltd. vs ACIT 287 ITR 62 (Mad) dealing with the law as it stands after amendment w.e.f. 01-04-1989. 2. The ld.CIT(A) did not at all consider the ratio of CIT vs India Thermet Corporation Ltd. 56 ITD 307 (Del Trib), which was specifically relied upon the Assessing Officer while making the ....