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2012 (9) TMI 42 - AT - Income TaxAddition on account of Transfer Pricing Adjustment - assessee contested that out of the 11 comparables 3 of the selected companies have 80 times, 24 times and 76 times of the turnover of the assessee company - Held that - Following the decision in DCIT Versus Indo American Jewellery Ltd. 2010 (5) TMI 530 - ITAT, MUMBAI wherein comparables selected by revenue authorities were rejected by the Tribunal on the ground that their turnover was more than 8 times and 11 times respectively of the turnover of the assessees. Respectfully following these decisions the three comparables taken by the revenue authorities namely BHEL, REL and L&T are rejected and direct the exclusion of the same for the purpose of comparability analysis - in favour of assessee. Exclusion of commission income for the purpose of computing operating profit margin (OPM) - Held that - As decided in assessee s own case that the commission income, which has been excluded from the profitability of the assessee, is not a passive income but an operational income as assessee is the local contact point for the ABs and is a virtual projection for the ABs in India giving them visibility and presence, is engaged in rendering warranty services for these direct sales on which commission is earned, and a part of its marketing efforts also contribute to this earning, thus consider it appropriate that commission income on direct sales should not be excluded from the profitability of the assessee - in favour of assessee. Exclusion of liquidated damages for the purpose of computing operating profit margin (OPM) - Held that - There is nothing on record to show the basis on which provision was made by the assessee for liquidated damages and whether there is any policy consistently adopted by the assessee in making such provision. Having regard to this fact of the case, it is difficult to accept the contention of the assessee that the provision for the liquidated damages is a part of operating expenses and the same needs to be taken into account for the purpose of computing OPM - against assessee. Disallowance of working capital adjustment on the final list of comparable companies - Held that - Considering decision by the Tribunal in assessee s own case for the AY 2006-07 wherein a direction was given by the Tribunal to allow working capital adjustment at 1.55% as against 0.66% made by the TPO. Keeping in view the said decision the AO is directed to verify the details of working capital adjustment and allow appropriate working capital adjustment - in favour of assessee for statistical purposes. The final adjustment on account of transfer pricing, if any, has to be made only in respect of transactions with AE and not in respect of entire turnover of the assessee as made by the revenue authorities - in favour of assessee. Addition on taking the enhanced value of consideration as per the stamp authorities - computation of short-term capital gain on sale of building - Held that - As decided in Income-tax Officer Versus United Marine Academy 2011 (4) TMI 15 - ITAT MUMBAI capital gain arising from the transfer of depreciable asset u/s. 50, the provisions of section 50C can be applied to adopt the value assessed for stamp duty payment as full value of consideration - against assessee. Addition made on account of provision for variable pay - Held that - Respectfully following the decision of the co-ordinate Bench of this Tribunal in assessee s own case for the AY 2006-07 remitting the matter to the file of the AO for deciding the same afresh after giving the assessee an opportunity to substantiate its claim that the liability on account of provision for variable pay is ascertained liability in the light of additional evidence filed by the assessee as well as such other material as the assessee may wish to rely upon - in favour of assessee for statistical purposes. Grant of less credit of tax deducted at source - Held that - Direction to the AO to grant credit for TDS as per the law after verifying the claim of the assessee from the relevant record including the TDS certificates - in favour of assessee for statistical purposes.
Issues Involved:
1. Transfer Pricing Adjustment 2. Addition under Section 50C for Short-Term Capital Gain 3. Addition to Book Profits under Section 115JB 4. Grant of Less Credit for Tax Deducted at Source (TDS) Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue concerns the addition of Rs. 9,08,99,241/- made by the AO to the total income of the assessee on account of Transfer Pricing Adjustment. The assessee had engaged in international transactions with its Associated Enterprises (AEs) and used the Transactional Net Margin Method (TNMM) to determine the Arm's Length Price (ALP). The TPO initially adjusted the OPM of the assessee and included certain comparables, leading to a TP adjustment of Rs. 9,96,84,096/-. The Dispute Resolution Panel (DRP) later excluded three comparables, and the adjustment was recalculated to Rs. 9,08,99,241/-. The Tribunal addressed several contentions raised by the assessee: - Exclusion of Comparables: The Tribunal directed the exclusion of BHEL, REL, and L&T from the comparables due to their significantly higher turnover compared to the assessee, following precedents from other cases. - Commission Income: The Tribunal included commission income in the operating profit for computing OPM, consistent with the decision in the assessee's own case for AY 2006-07. - Provision for Liquidated Damages: The Tribunal rejected the inclusion of liquidated damages as operating expenses due to their contingent nature. - Working Capital Adjustment: The Tribunal directed the AO to verify and allow appropriate working capital adjustment, following the decision in the assessee's own case for AY 2006-07. - Adjustment Scope: The Tribunal directed that any TP adjustment should be made only in respect of transactions with AEs, not the entire turnover, following the decision in Phoenix Mecano (India) Ltd. The Tribunal concluded that if the recomputed difference between the ALP and the value of international transactions is within the 5% safe harbour limit, no TP adjustment should be made. 2. Addition under Section 50C for Short-Term Capital Gain: The Tribunal upheld the AO's decision to adopt the value assessed for stamp duty payment as the full value of consideration for computing short-term capital gain on the sale of the building. This decision was based on the precedent set by the Special Bench of the ITAT in the case of ITO v. United Marine Academy. 3. Addition to Book Profits under Section 115JB: - Provision for Litigation: The assessee did not press the issue regarding the addition of Rs. 6 lakhs for litigation provision, and it was dismissed as not pressed. - Provision for Variable Pay: The Tribunal remitted the issue of the provision for variable pay to the AO for fresh consideration, allowing the assessee to substantiate its claim that it is an ascertained liability, following the decision in the assessee's own case for AY 2006-07. 4. Grant of Less Credit for Tax Deducted at Source (TDS): The Tribunal directed the AO to grant appropriate TDS credit after verifying the relevant TDS certificates, as requested by the assessee. Conclusion: The appeal was partly allowed, with directions given for recomputation and verification on various issues, ensuring adherence to precedents and proper verification of claims.
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