2012 (3) TMI 577 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of difference of Arm's Length Price.
2. Opportunity to the TPO before computing margins.
3. Consideration of service and commission income as operating income.
4. Consideration of segmental accounts of healthcare division in Advanced Micronics Device Ltd.
5. Applicability of penalty u/s 271(1)(c) and 271G.

Summary:

1. Deletion of Addition on Account of Difference of Arm's Length Price:
The Revenue challenged the CIT(A)'s deletion of the addition of Rs. 2,28,21,754/- made by the TPO, who had determined the Arm's Length Price (ALP) of international transactions involving the assessee, a wholly owned subsidiary of Dentsply Industries, USA. The TPO had used the TNMM method and found the assessee's operating margin to be 4.55%, whereas it should have been 7.11%. The CIT(A) upheld the TPO's selection of comparables but deleted the addition after admitting additional evidence without allowing any opportunity to the TPO.

2. Opportunity to the TPO Before Computing Margins:
The CIT(A) admitted additional evidence regarding the comparables and the assessee's data without allowing any opportunity to the TPO/AO, violating Rule 46A of the IT Rules, 1962. The Tribunal noted that the CIT(A) did not follow the procedure laid down under Rule 46A and did not allow the TPO/AO to examine the additional material.

3. Consideration of Service and Commission Income as Operating Income:
The CIT(A) made adjustments to the operating profit and total costs of both the comparable companies and the assessee, considering commission income, service charges, interest payments, and other incomes. The Tribunal found that the CIT(A) did not provide an opportunity to the TPO/AO to examine these adjustments.

4. Consideration of Segmental Accounts of Healthcare Division in Advanced Micronics Device Ltd.:
The CIT(A) considered the segmental accounts of Advanced Micronic Devices Limited without allowing the TPO/AO to examine the additional evidence. The Tribunal directed the CIT(A) to re-adjudicate the issue after allowing sufficient opportunity to the TPO/AO.

5. Applicability of Penalty u/s 271(1)(c) and 271G:
The CIT(A) quashed the applicability of penalty u/s 271(1)(c) and 271G, stating that the assessee had furnished all details and information in its return and transfer pricing study report. The Tribunal did not specifically address this issue but directed the CIT(A) to re-adjudicate all issues after allowing sufficient opportunity to both parties.

Conclusion:
The Tribunal vacated the findings of the CIT(A) and restored the matter to his file for re-adjudication in accordance with the law after allowing sufficient opportunity to both parties. The appeal was allowed for statistical purposes.