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TMI Blog2012 (6) TMI 703X X X X Extracts X X X X X X X X Extracts X X X X ..... ses instead of its entire turnover of trading segment was also found acceptable - on facts, impugned order passed under section 143(3), read with section 144C(13), was to be set aside and, matter was to be restored to file of Assessing Officer for disposal afresh – Matter remanded. - IT Appeal No. 8237 (Mum.) of 2010, - - - Dated:- 30-9-2011 - P.M. Jagtap, R.S. Padvekar, JJ. Arvind S. Sonde for the Appellant Goli Sriniwas Rao for the Respondent ORDER P.M. Jagtap, Accountant Member:- 1. This appeal filed by the assessee is directed against the order passed u/s 143(3) read with section 144C(13) whereby addition of Rs. 8,56,37,000/- has been made to the total income of the assessee by way of transfer pricing ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he advertisement and sales promotion expenses made to trading segment. This allocation made by the assessee was not found acceptable by the TPO. According to him, the turnover of the assessee under the manufacturing was only about 1/10th of the total turnover and its main area of work was actually trading and indenting. He held that the advertisement and sales promotion expenses, therefore, should have been allocated among the manufacturing and trading segment on the basis of turnover and after making such allocation, he found that the operating profit of the assessee in the trading segment was negative at 0.24%. 3. The TPO then proceeded to select 12 comparables by applying different criterias and after excluding 8 of the said comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other objection of the assessee to the allocation of advertisement and sales promotion expenses made by the TPO among trading segment, the same was found to be without any sound basis by the DRP holding that in the absence of separate books of account maintained for each activity, it was not proper for the assessee to claim that entire advertisement and publicity expenses were related only to the manufacturing activity. It was held by the DRP that the allocation of advertisement and publicity expenses made by the TPO among manufacturing and trading segment on the basis of turnover was fair and proper and no interference therein was called for. As regards the objection of the assessee to the selection of comparables made by the TPO on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable for the purpose of transfer pricing analysis. He has taken us through the relevant portion of annual report of the said company placed at page Nos. 527, 534, 539 and 540 of his paper book to show that the said company had substantial related party transactions effected in the relevant year. The learned DR has accepted in principle the proposition that a party having substantial related party transactions should be excluded as a comparable. He, however, has submitted that it is not very clear from the relevant portion of annual report of M/s Indokem Ltd. referred to by the learned counsel for the assessee as to what exactly is the quantum of related party transactions and the exact ratio thereof in the total transactions of the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal and respectfully following the ratio laid down in these decisions, we hold that the adjustment for arms length price, if any, should be made only in respect of transactions with associated enterprises and not in respect of entire trading transactions of the assessee as done by the TPO/AO. 8. As regards the last proposition that while working out the operating profit to sales margin, accurate figures as per the annual accounts of the concerned comparables, namely, PH Trading Ltd. and Hiran Orgochem Ltd. should be taken, the learned counsel for the assessee has taken us through the relevant portion of annual accounts of the said comparable companies placed at page Nos. 379, 380, 596 and 657 of his paper book to point out the mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of transfer pricing adjustment that is required to be made in different scenarios depending on the acceptance of different propositions, in our opinion, requires verification at AO/TPO level especially keeping in view the fact that some of the issues relating to the propositions have been restored by us to the file of the AO/TPO for verification. We, therefore, set aside the impugned order passed u/s 143(3) read with section 144C(13) and restore the matter to the file of the AO for deciding the matter relating to transfer pricing adjustment afresh after taking into consideration the propositions put forth by the learned counsel for the assessee and the decision rendered by us thereon, after making necessary verification. Needless to obser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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