2015 (7) TMI 434 - AT - Income Tax

Modification of order 2014 (11) TMI 552 - ITAT AHMEDABAD - Adjustment made to the income on account of international transactions with Associated Enterprises - Assessee submitted that the Tribunal agreed with the contention of the appellant that the manufacturing segment of the appellant cannot be further bifurcated into DTA and EOU, but it has not given clear directions to the CIT(A) to apply TNM Method by considering both the segments together - Held that - assessee has not pointed out any mistake except that a prayer for specific direction to the ld.CIT(A). However, it is clarified that the ld.CIT(A) while deciding the issue would consider the observation of this Tribunal as made in para-28.3 of the order. - Appeal disposed of.

Summary

Issues:
1. Modification of Tribunal order regarding international transactions with Associated Enterprises.

Analysis:
The Assessee filed a miscellaneous application seeking modification of the Tribunal order dated 14.11.2014 regarding the upward adjustment made to the income on account of international transactions with Associated Enterprises. The Assessee contended that while the Tribunal agreed that the manufacturing segment cannot be further bifurcated into DTA and EOU, clear directions were not given to the CIT(A) to apply the TNM Method by considering both segments together. The Assessee requested specific directions to avoid repetitive limitations on this issue. The Sr.DR opposed the application, stating that no apparent mistake was pointed out by the Assessee.

The Tribunal, in its order, observed that the artificial bifurcation of DTA and EOU is against the law and that the DTA segment has no exports, unlike comparable companies. The Tribunal noted the incorrect computation by the CIT(A) and the methodology used to arrive at the figures. The Assessee had bifurcated its activities into manufacturing and distribution segments, but the Transfer Pricing Officer (TPO) further divided them into DTA and EOU, using the same set of comparable companies for both. The CIT(A) restricted the addition on account of lower margins of the DTA segment, citing decisions from various cases. The Tribunal found no fault with the CIT(A)'s decision to restrict the addition based on differential operating margins but ordered a recomputation of international transactions due to an incorrect figure. The Assessee did not identify any mistakes but requested specific directions to the CIT(A), which the Tribunal clarified would be considered during the reevaluation.

Ultimately, the Tribunal allowed the Assessee's miscellaneous application, directing the issue to be restored to the file of the CIT(A) for recomputation of international transactions, with both parties given an opportunity to be heard. The application was disposed of accordingly.