9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (7) TMI 1488 - AT - Income TaxTP adjustment - comparable selection - as argued benefit of underutilisation of capacity should be allowed before making any adjustment - Held that - Without considering all the relevant and material facts due taxes cannot be assessed. In the case before us the basic fact of capacity-underutilisation has been ignored. Besides depreciation would also have bearing on taxable income. Even in cases of domestic companies it plays a vital role. In the initial years most of the manufacturing companies suffer losses because of high depreciation. In short for determining fair TP adjustments the TPO/FAA should have considered these vital factors and given finding. Along with the depreciation certain fixed operating costs like Factory Rent, Testing Research & Development Cost etc.would have to be incurred irrespective of the level of production. Respectfully following the cases relied upon by the AR we hold that appropriate adjustment has to be allowed while computing the net margins in the case of tested party also to facilitate comparability analysis - in the interest of justice matter should be restored back to the file of the AO/TPO for fresh adjudication who would consider the capacity under-utilisation factor along with the other factors for determining TP adjustments. Difference in closing stock of gold - AO observed that gold had been valued at 532.80 per gram that the value shown by the assessee of gold was abnormally below the market value of Rs. 1, 213/- per gram as on 31.03.2008 - difference between value of closing stock shown by the assessee and value of closing stock computed by AO - assessee had argued that there was a typographical mistake in the audit report that a revised report was submitted that indicated the mistake committed while filing the original return - Held that - AO should have made further inquiries and should have examined who had issued two audit reports to find out the truth of the claim of the assessee that there was mistake in the first audit report. Audit reports are not simple piece of papers-they are prepared and signed by the professionals. Therefore the AO should have verified the facts before making an addition. We are restoring the issue to the file of the AO as we are of the opinion that matter needs verification about the claim made by the assessee - matter needs verification about the claim made by the assessee - Decided in favour of assessee partly
Issues Involved:
1. Transfer Pricing (TP) Adjustment 2. Difference in Closing Stock Valuation Issue-wise Detailed Analysis: 1. Transfer Pricing (TP) Adjustment: The assessee, engaged in the manufacturing/exporting of diamond-studded jewelry, filed its income return on 24.09.2009. During assessment, the AO identified international transactions with its Associate Enterprises (AEs) and referred the matter to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP). The TPO observed that the assessee had only one AE, M/s. Fantasy Diamond Corporation, USA, and benchmarked the transactions using the TNMM method. The TPO compared the assessee's PLI with twelve comparables and made a TP adjustment of Rs. 3.59 Crores, concluding that the transactions were not at arm's length. The assessee contested the TPO's findings before the First Appellate Authority (FAA), arguing that the TPO failed to consider the underutilization of capacity and the fact that the assessee was a new unit. The FAA upheld the TPO's decision, stating that the TP regulations did not require proving price manipulation for profit shifting. Upon appeal, the Tribunal noted that the TPO had compared the assessee with established companies without considering the underutilization of capacity and other relevant factors. The Tribunal emphasized that comparisons should be made between equals and that the assessee's initial year losses were due to fixed costs and underutilization. The Tribunal directed the AO/TPO to reconsider the TP adjustment, factoring in the underutilization of capacity and other relevant factors, and to re-evaluate the comparables. 2. Difference in Closing Stock Valuation: During assessment, the AO found discrepancies in the closing stock valuation of gold. The assessee reported 4572 grams of gold valued at Rs. 532.80 per gram, whereas the market value was Rs. 1,213 per gram. The AO added Rs. 31,09,895 to the income, suspecting a typographical error in the audit report. The assessee explained that the discrepancy was due to a typographical error and submitted a revised audit report. However, the AO and FAA rejected this explanation, citing a lack of documentary evidence. The Tribunal found that the AO should have verified the facts and made further inquiries regarding the audit reports. The Tribunal restored the issue to the AO for verification of the assessee's claim and directed the AO to provide a reasonable opportunity for the assessee to present its case. Conclusion: The Tribunal partly allowed the appeal, directing a re-evaluation of the TP adjustment considering underutilization of capacity and other factors, and remanded the issue of closing stock valuation to the AO for further verification. The order was pronounced on 8th July 2016.
|
