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TMI Blog2011 (1) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he erred in rejecting the cost plus method, which had been consistently accepted by him in the proceedings of earlier years. This method had also been accepted by the IRS, United Kingdom, in the case of the buyer. Ground no. 5 is to the effect that the AO erred in disallowing expenditure of 1,29,23,216/-on inland haulage charges paid to agents of foreign shipping lines by invoking the provision contained in section 40(a)(ia) read with section 194C of the Act. 1.1 The assessee had also made an application for stay of demand, which was disposed off in S.A. No. 46(Del)/2010 on 13.08.2010. This interim-order comes to an end on passing the final order on the appeal. 2. The facts of the case are that the assessee filed its return on 20.11.2006 declaring total income of Rs. 4,11,57,200/-. This return was processed u/s 143(1) on 13.11.2007. Subsequently, the case was picked up for scrutiny as it was found that it entered into international transactions with the associated enterprise. The valuation of these transactions was referred to the Transfer Pricing Officer ( TPO for short), who passed an order u/s 92CA(3) of the Act on 23.7.2009. The TPO suggested adjustment of Rs. 2,96,72, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 40(a)(ia), it was submitted before the DRP that the payments made to the agent of a foreign shipping lines does not attract the provisions contained in section 194C. For this purpose, reliance was placed on a Board circular as well as on decided cases in the matter. The learned Panel mentioned that the payment has been made to Indian agent of foreign shipping lines for inland haulage of goods by railways from Tughlakabad, New Delhi, to sea port of Navi-Mumbai. The AO was directed to make the disallowance in view of the history of the case. 3. Before us, the ld. counsel for the assessee mentioned about the brief history of the case. It is submitted that the assessee-company is being managed by the husband-wife team. It has been running a factory at Sahibabad since 1996 for production of metal bedsteads. The process of manufacturing does not involve any sophisticated technology. All the goods manufactured by it are sold to the wholly owned subsidiary company in the United Kingdom. The assessee had a long-standing understanding with the subsidiary company to sell the goods at cost plus method. The value to be added to the cost is Rs. 2000 per piece in respect of all items except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules. It is agitated that since the assessee failed to maintain any data, the adjustment should be upheld. In respect of disallowance u/s 40(a)((ia), reliance is placed on the order of the AO. 5. In the rejoinder, the ld. counsel submitted that even if the assessee was required to maintain proper documentation as required under the Rules, non-maintenance thereof cannot lead addition as the same has to be made on the basis of a proper study by the AO or the TPO. 6. We have considered the facts of the case and submissions made before us. The facts in regard to transfer pricing adjustment are that the assessee is engaged in the manufacture of designer steel furniture and parts made of cast metal, brass, chrome etc. The raw-materials used are aluminum, steel tubes, brass casting, brass tubes and hardware. The assessee exported goods of the value of about Rs. 30.24 crores to its wholly owned subsidiary in U.K., The Original Bedsteads Company Ltd. The price of the goods accounted for in the books is based on cost plus method. The assessee had been required to furnish information and documents to be maintained u/s 92D(1) and the transfer pricing study report to support the claim that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch variation to enable a reasonable comparison; (vii) the margins of Shakti Met Dor Limited are changing drastically from year to year. The company seems to have added some specialized products after March, 2005 which are resulting into high profits. The margins of Eurocoustic Products Limited have also increased substantially due to introduction of new products; and (viii) a fresh search has been carried out by the assessee on Prowess taking all manufacturing companies having a turnover between 10 crores to 50 crores and having some exports. This has thrown up 636 companies whose mean margin (OP/OC) has been computed at 13.05%. 6.2 The objections of the assessee had been considered. It is mentioned that the assessee has not filed any documentation to prove that associated parties transactions have been carried out at arm s length. The assessee had fixed profit of 2,000/-per bed stead and Rs. 1,000/-per headboard, which is not fixed on any credible or comparable basis. This value addition does not represent arm s length profit as it does not take into account the design of the furnished product and the cost incurred. The method is not appropriate as it leads to vastly diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S to that associated enterprise is reproduced below:- As I said at our meeting, having considered the issues, I am content that the company has adopted a suitable transfer pricing policy for the year ended 31 March, 2001. As suggested at the meeting I would appreciate if the company would keep this matter under review especially with relation to the exchange rates between the rupee and the pound used to calculate the resale minus figure. 6.5 The ld. counsel has also submitted that there is some mistake in the data used by the AO in case of Shakti Met Dor Ltd. He has drawn our attention to page no. 41, which shows the total expenses debited to income and expenditure account as on 31.3.2006 at 40.59. The assessee downloaded the data in respect of this company from the Bombay Stock Exchange Website (paper book page 213), which shows total income at Rs. 4932.30 lakhs and profit before tax at Rs. 1364.82 lakhs. The figures in this data base do not tally with the figures taken by the AO. This company is having both inland sales and overseas sales. Further, it has been mentioned in the director s report that the company had a year of exceptional growth that exceeds the industry aver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in respect of each year unless there is significant change in the nature or terms of international transaction. Thus, in general, rule 10D casts an obligation on an assessee to maintain information and documents in respect of international transaction as mentioned in sub-rules (1) and (3). However, where a transaction continues over more than one year, fresh documentation is not necessary unless there is a significant change in the nature or terms of international transaction. The exception is applicable only when an international transaction continues to have effect over two or more years. In the instant case, each transaction of sale is a separate transaction. The assessee has not shown any agreement between it and the associated enterprise which subsisted right from the year 1996 and which is binding in nature. The market conditions also keep on changing from year to year. Therefore, it does not stand to reason that the margin charged in the year 1996 in rupee terms per piece should be taken to be a fair margin for all times to come. The case of the ld. counsel in this behalf has also been that all the costs are reimbursed by the subsidiary company and, therefore, any incr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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