9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (5) TMI 220 - AT - Income TaxTP Adjustment - computing Gross Profit margin while applying TNMM - whether the computation of the margin of gross profit by the assessee supporting the internal transactional net margin method is the correct approach or not.? - HELD THAT - We find that the rule 10 B of The Income Tax Rules defines the determination of arm s-length price u/s 92C of the act with respect to the several methods. In rule 10 B (1) (e), transactional net margin method is required to be computed with respect to the Net Profit Margin Only. We do not find that rules subscribe to the view taken by the assessee of computing Gross Profit margin while applying TNMM. Therefore as assessee has taken only the gross profit margin and stated that it has adopted internal transactional net margin method is an incorrect approach not supported by the income tax rules. In view of this, the benchmarking methodology adopted by the assessee taking the gross profit margin is correctly rejected by the revenue authorities. As we have already held that transactional net margin method comparing the net profit is the correct methodology in accordance with the income tax rules, we reject the contentions of the assessee that there are no expenses incurred by the assessee or even if those are incurred the may be spread in the same ratio to arrive at the net profit. Whether the learned transfer-pricing officer has taken the correct comparables or not? - Balmer Lawrie - The assessee has not shown that there are significant related party transactions in the logistics segment of this comparable company. Further, merely because a comparable company has a shareholding of government of India it does not become non-comparable only because of this factor that part of the shareholding is owned by government of India. If such logic were accepted then all the Navratna companies, who are leaders in their own business, would be excluded from the comparability analysis. Therefore, we reject the contention of the assessee for exclusion of Balmer Lawrie Co Ltd (logistics segment). Hindustan cargo Ltd - There is a difference in the accounting period of the comparable company with the assessee company. It is also not shown before us that Hindustan cargo Ltd is a listed entity and it is publishing its quarterly results. Therefore, we find that the learned transfer-pricing officer has erred in including Hindustan cargo Ltd as a comparable company. Therefore, we direct the learned TPO to exclude the same. Disallowance u/s 14A r.w.r. 8D - Suo moto disallowance - HELD THAT - We find that during the year exempt income earned by the assessee is not 11, 30,945 but ₹ 7,778,110/ . The assessee itself has given a working where the disallowances required to be restricted at ₹ 192,920/ . Looking to the amount of exempt income earned during the year compared to the previous year the amount of disallowance deserves to be upheld to the extent of ₹ 192,920/ . Accordingly, the learned assessing officer is directed to retain the disallowance to that extent only. Accordingly, ground number 6 of the appeal is allowed. TP Adjustment on corporate guarantee - HELD THAT - We find that the learned CIT A correctly held that companies and cannot be made between guarantee issued by a commercial bank as against a corporate guarantee issued by holding company to its subsidiary company. Therefore, the rate adopted by the learned transfer pricing officer of state bank of India rates are not proper and further a markup of 200 basis point on the same is also not proper consequently. As it is a case of holding company and subsidiary company transaction, we do not think any reason to consider the placement of margin money for the purpose of bank guarantee. In view of this we do not find any infirmity in the order of the learned CIT A in deleting the adjustment on account of guarantee commission. Addition u/s 41 (1) being provision for liability in respect of transfer charges - HELD THAT - CIT A noted that assessee follows a policy two) the outstanding transshipment charges if the agents have not claimed the same for more than three years. Therefore the amount that has been provided and outstanding for financial year 2006 07 the assessee needs to wait till 31st of March 2010 and thereafter) the same in the books in financial year 2010 11. The assessee has followed the same and in financial year 2010 11 the financial statement shows in the miscellaneous receipt the assessee has written back such an amount. Therefore, for assessment year 2011 12 the assessee has offered this sum for taxation. We do not find any infirmity in the order of the learned CIT A in deleting the above addition looking at the consistent accounting policy adopted by the assessee and offering the same amount as income when three years have elapsed. Accordingly, ground of the appeal are dismissed.
Issues Involved:
1. Transfer Pricing Adjustment 2. Disallowance under Section 14A 3. Corporate Guarantee Adjustment 4. Addition under Section 41(1) Detailed Analysis: 1. Transfer Pricing Adjustment: The primary issue revolves around the transfer pricing adjustment concerning the international transaction of ship chartering services from the assessee's associated enterprises (AE). The assessee argued that the internal Transactional Net Margin Method (TNMM) should be used, comparing the gross profit margins from transactions with AEs and non-AEs. However, the Transfer Pricing Officer (TPO) and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected this approach, favoring the external TNMM at the entity level. The TPO selected eight comparable companies and determined an arithmetic mean Profit Level Indicator (PLI) of 13.84%, which was applied to the total sales of the assessee. The CIT(A) corrected this by applying the PLI only to the international transactions, reducing the adjustment significantly. The Tribunal upheld the CIT(A)'s approach but excluded one comparable company, Hindustan Cargo Ltd., due to a different financial year. The Tribunal also directed that the profit margin should be applied only to the international transactions, not the total sales. 2. Disallowance under Section 14A: The assessee challenged the disallowance under Section 14A, which pertains to expenses incurred in earning exempt income. The Assessing Officer (AO) applied Rule 8D to compute a disallowance of ?1,657,476, which the CIT(A) reduced to ?965,162. The assessee argued that Rule 8D should not apply retrospectively and had already disallowed ?192,920 voluntarily. The Tribunal upheld the assessee's contention, restricting the disallowance to ?192,920, considering the exempt income earned during the year. 3. Corporate Guarantee Adjustment: The AO made an adjustment of ?578,580 on the corporate guarantee provided by the assessee to its AE, benchmarking it at a rate of 4.75%. The CIT(A) deleted this adjustment, following the decision in earlier years where a 0.5% commission was deemed adequate. The Tribunal upheld the CIT(A)'s decision, noting that the corporate guarantee issued by a holding company to its subsidiary cannot be compared to a bank guarantee, and the rate adopted by the TPO was not appropriate. 4. Addition under Section 41(1): The AO added ?1,816,155 under Section 41(1) for unproved liabilities related to transshipment charges. The CIT(A) deleted this addition, noting that the assessee had a consistent policy of writing back such liabilities after three years and had offered the amount for taxation in the financial year 2010-11. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the consistent accounting policy adopted by the assessee. Conclusion: The Tribunal partly allowed the appeal filed by the assessee, specifically addressing issues related to transfer pricing adjustments and disallowance under Section 14A, while dismissing the appeal filed by the AO. The Tribunal's decision emphasized the importance of consistent accounting policies and appropriate benchmarking methodologies in transfer pricing cases.
|
