9911796707
TMI Blog2011 (2) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... ls 2. Assessee is resident company engaged in the business of manufacturing and sale of IC Engines for power generation and industrial application in the domestic market. During the years, assessee had international transactions relating to 'procurement Support Services' and therefore, these transactions were referred to the Transfer Pricing Officer at Mumbai held that the said transactions are not at arm's length and an order was passed u/s 92CA(3) of the Act. In the process, no deduction from the arithmetic mean was allowed in accordance with the provisions of the first proviso to section 92C(2) of the Act. Otherwise, on facts, the TPO considered 61 comparable prices and finally relied on 3 prices for arriving at the arithmetic mean, which computing the 'arm's length price' in this case for both the years under consideration. These facts relate to ground 5 of the appeals. 3. In this regard on ground 5, Ld. Counsel mentioned that the issue raised in the ground relates to the proper appreciation of the first proviso to section 92(C)(2) of the Act. In this regard, Ld. Counsel took us through the report of the TPO which is partly reproduced in para 7.2 of the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO also mentions in her order in para 5 that "the company has earned as operating margin as a percentage and operating cost earned by the comparables (plural) of 8.21%. Same applies to AY - 2004-05, where the TPO in para 5 of her order records that "the company has earned operating margin of a percentage of operating cost of 1.42% as against arithmetic mean of the operating margin as a percentage of operating cost earned by comparables (Plural) of 5.51%. For this year, as many as five companies were considered.......,page no.10 of the paper book). Since more than one comparables prices were considered in our case, according to U.E. Trade Corporation case, benefit of 5% is available to us." For strengthening the above, Sri Inamdar also filed certain decisions of various Tribunals in favour of the interpretation of the impugned proviso to section 92C(2) of the Act to mean that the assessee is entitled to deduction of 5% out of the arithmetical mean at the assessee option of the assessee. 5. We have heard both the parties and perused the orders of the Revenue as well as the Tribunal orders cited by Sri Inamdar, the Ld. Counsel and the Sri Sharma, Ld CIT DR. The limited issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax payer's marginal relief at 5 per cent. with reference to the arithmetical mean irrespective of the range of actual deviation between the margin disclosed by the assessee and the average mean margin. The assessee will get a standard deduction of 5 per cent. and the assessee's arm's length price will be increased to 15 per cent. and thereafter the difference of 5 per cent. between 20 per cent. and 15 per cent alone shall be added as arm's length price adjustment. B Extract from the decision in the case of UE Trade Corporation (I) P Ltd vide ITA NO 4405/Del/2009 for the Ay 2003-04 "5.4 We have considered the facts of the case and submissions made before us. The proviso, which is applicable to the proceedings of this year, contemplates an option to the assessee to choose a price which may vary from the arithmetical mean. This proviso is applicable where more than one price is determined and thereafter the mean of such prices is taken to be arm's length price. However, there is only one comparable instance in this case. The decision in the case of Perot Systems TSI (India) Ltd. (supra) supports the case of the revenue." c. Extract from a decision in the case of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the provision only to marginal cases where the price disclosed by the assessee does not exceed 5 per cent. of the arithmetic mean. The arm's length price determined on application of the most appropriate method is only an approximation and is not a scientific evaluation. Therefore, the Legislature though it proper to allow marginal benefit to assessees who opt for such benefit. In the case of an assessee who exercises the option and accepts the arm's length price even exceeding 5 per cent. of the arithmetic mean determined by the tax authority as correct and is ready to pay tax on the difference between the price disclosed by him and the arm's length price the application of the proviso is not excluded. The legal position cannot be different in a case where minor variation of 5 per cent. is not accepted and the arm's length price is further challenged in appeal. The mere fact of acceptance or non-acceptance of the arithmetic mean cannot be taken to be the determining factor relating to the right to contest the arm's length price in appeal. Such inference is not supported by the language of the provision. Both in the first as also in the second limb, the implications of the determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer to include income from scrap sale, discount and commission, inspection and testing charges, job work and income derived from supplies payment in total turnover while computing deduction u/s. 80HHC of the Act. 3. The learned CIT(A) erred in directing the AO to allow the provision for warranty expenses. 4. The learned CIT(A) erred in not appreciating the fact that the provision for warranty was in the nature of contingent liability and hence not allowable. 5. The learned CIT(A) erred in accepting the assessee's claim that provision for warranty is made on scientific basis. 6. The learned CIT(A) erred in directing the Assessing Officer to verify the assessee's claim in respect of New Engine Performance Inspection fees and allow the same without giving a clear finding as this tantamount to setting aside the assessment order which is beyond his power." 11. Ground no. 1 relates to exclusion of excise duty and sales tax from the total turnover of the assessee for the purpose of calculating deduction u/s. 80HHC and as agreed by both the parties in the dispute, this issue is decided by the Supreme Court in the case of Lakshmi Machine Works 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss income from scrap sale, discount and commission, inspection and testing charges, job work and income derived from suppliers payment in the business income while computing deduction u/s. 80HHC of the IT Act. 2. In the facts and circumstances of the case, the Learned CIT(A) erred in directing the AO to verify the Assessee's claim in respect of new engine performance inspection fees and allow the same without giving a clear finding as this tantamount to setting aside of the assessment order which is beyond his powers." 16. Ld. DR mentioned that there are two grounds in this appeal. Ground no.1 is identical to ground no. 2 of the ITA No. 148/PN/07, accordingly the issue has to be decided in line with the same, where we set aside this issue to the files of the AO for want of speaking order and deciding the issues afresh after considering the existing judicial pronouncements in force. Accordingly, ground no. 1 is also set aside with similar directions. 17. Regarding ground no.2, relates to the correctness of the directions given by the CIT(A) to the A.O. It is argued by the DR that the said direction which has an effect of setting aside to the A.O is side the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
