2011 (6) TMI 944 - AT - Income Tax

Summary

Issues Involved:

1. Validity of the DCIT's order pursuant to the Dispute Resolution Panel (DRP) directions.
2. Transfer pricing adjustments.
3. Other adjustments including disallowance of VAT payment and imposition of interest u/s 234B, 234C, and 234D.

Summary:

1. Validity of the DCIT's Order:
The assessee contended that the DCIT's order, based on the DRP's directions, was contrary to law, facts, and circumstances of the case.

2. Transfer Pricing Adjustments:
- 2.1 Price of International Transaction: The DRP erred by not accepting the assessee's declared price of Rs. 35,61,05,687 for the purchase of medical devices and determining the arm's length price (ALP) at Rs. 42,11,11,027, resulting in a transfer pricing adjustment of Rs. 6,50,05,340.
- 2.1.2 Economic Analysis: The DRP rejected the economic analysis conducted by the assessee in accordance with the IT Act and IT Rules, leading to an adjustment u/s 92CA.
- 2.2 Comparables and Data: The DRP erred in confirming the TPO's rejection of the comparables selected by the assessee and using only the financial year 2005-06 data for determining the ALP.
- 2.3 Resale Price Method (RPM): The DRP's methodology for computing the ALP under RPM was not as per rule 10B(b), and the purchase price was incorrectly taken as the base instead of the resale price.
- 2.4 Arm's Length Range of 5%: The DRP did not grant the benefit of the ±5% profit margin range as prescribed under the proviso to section 92C(2).
- 2.5 Other Adjustments: The DRP's adjustments for start-up company/economic differences were deemed insufficient, and the valuation accepted by customs authorities was ignored.

3. Other Adjustments:
- 3.1.1 VAT Payment: The DRP erred in disallowing Rs. 47,250 paid to Karnataka VAT authorities, which was not penal in nature.
- 3.1.2 Interest Imposition: The DRP erred in imposing interest u/s 234B, 234C, and 234D.

Tribunal's Findings:
- The Tribunal found merit in the assessee's argument that unsold goods should not be considered for determining the ALP. Only the goods sold should be considered.
- The Tribunal directed the Assessing Officer to re-determine the ALP in accordance with Rule 10B(1)(b) of the IT Rules, considering the purchase price from the AE for the sold goods, and make necessary adjustments for marketing expenses and other differences.
- The Tribunal dismissed other grounds as not seriously pressed by the assessee.

Conclusion:
The appeal was partly allowed for statistical purposes, with directions to the Assessing Officer to re-determine the ALP and compute any required additions after providing an opportunity for hearing to the assessee.