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TMI Blog2013 (6) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... dology adopted by the appellant for benchmarking its international transactions. 2.1 That the assessing officer/DRP erred on facts and in law in aggregating the transaction of import of parts and capital goods with other transactions and benchmarking the international transactions at entity level applying TNMM. 2.2 That the assessing officer/DRP erred on facts and in law in rejecting resale price method applied by the appellant for benchmarking the international transaction of export of parts as the most appropriate method and applying TNMM at entity level. 2.3 That the assessing officer/DRP erred on facts and in law in rejecting associated enterprise of the appellant as the tested party even when the associated enterprises were the least complex parties to the transactions and having fewer transactions. 2.4 That the assessing officer/DRP erred on facts and in law in applying additional filters of persistent losses and declining revenue without appreciating that the selection or rejection should be based on FAR analysis and not on financial results. 2.5 That the assessing officer/DRP erred on facts and in law in rejecting Orbit Industries Ltd. holding that the company is incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was more than Rs.15 crore, in accordance with the provisions of Section 92CA of the Act and with prior approval of Commissioner of Income Tax, Delhi-IV. The Assessing Officer referred the international transactions entered into by the assessee to the Transfer Pricing Officer (TPO) for determining Arms Length Price (ALP). 3. The TPO passed his order u/s 92CA(3) dated 07.09.2010 wherein he made an adjustment of Rs.6,48,78,406 in the ALP of the assessee. The assessee was asked to show cause as to why adjustment of above amount to the income of the assessee should not be made, being a difference in the ALP as determined by the TPO vide his order u/s 92CA(3) dated 07.07.2010. The assessee's contentions were considered by the Assessing Officer and rejected on the following grounds:- i) Enough opportunities were afforded by the TPO to the assessee in the proceedings before him. After hearing the assessee's arguments, the TPO has passed the order u/s 92CA(3). ii) The assessee has only repeated the submissions made before the TPO. iii) No comparables were given by the assessee company either before the TPO or before the undersigned during the course of assessment proceedings. iv) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed by the assessee. In this application of additional evidence, the assessee has vehemently contended that the appellant has reasonably obtained access to a foreign data base viz. on source and in order to justify the international transactions at ALP and to meet the objections of the TPO, the appellant has undertaken an extensive search of comparable companies on the said foreign data base providing data information of huge number of companies operating in Japan and Thailand in the similar business as that of associated enterprises of the appellant company. The assessee's learned counsel submitted that the additional evidence could not be submitted earlier because the database was very costly to obtain. 8. Replying to the above submissions, ld. DR submitted that at this stage, new comparables in the form of additional evidence cannot be entertained because this additional evidence was available in the public domain at the time of proceedings before TPO/DRP and Assessing Officer. The DR further submitted that as per relevant Rule 29, additional evidence cannot be entertained and admitted if during the earlier proceedings before the authorities below, the assessee has given a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itional evidence due to circumstances beyond his control and reasonable cause. In this situation, we are inclined to hold that additional evidence submitted by the assessee cannot be admitted at this appellate stage and, therefore, the application of the assessee is rejected. Ground no.1 11. Ground no.1 contains factual matrix related to the other issues which need no adjudication and we dismiss the same. Ground no.2 (2.1 to 2.9) 12. Ground no.2 is related to the adjustment of Rs.4,30,47,427 to the income of the appellant assessee on account of international transaction of import of parts and capital goods by disregarding the transfer pricing methodology adopted by the appellant for benchmarking its international transactions. 13. The counsel for the assessee submitted that the assessee company is a subsidiary company of Honda Trading Corporation, Japan engaged in the business of trading of a variety of products, such as steel products, dies, components of automobiles, motorcycles, scooters and other automotive components, and equipments, etc. He further submitted that during the year under consideration for the purpose of business of trading of goods in India, the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such abnormal exchange rate fluctuation, the appellant would have earned 10.04 percent of profit over sales and, hence, no adjustment would have been warranted in the arms' length price of the international transactions undertaken by the appellant company but due to huge and abnormal fluctuation in currency exchange rates, the associated enterprise had sold trading goods to the appellant company at a very low margin of 1-1.5 percent and if any adjustment is required to be made, it should be restricted to the profits retained by the associated enterprises. 16. Replying to the above submissions, the DR submitted that the DRP and Assessing Officer considered all the submissions and contentions of the assessee company. He further submitted that despite enough opportunities afforded by the TPO to the assessee in the proceedings before him, TPO passed the order u/s 92CA(3) of the Act on justified grounds after careful consideration of the submissions made before him (TPO). The DR further submitted that the assessee company did not submit comparables either before the TPO or before the Assessing Officer during the course of assessment proceedings and the assessee could not place any ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined/fixed for the future on the basis of average exchange rate of the currency involved in import of such products as prevailing in past six months. The price of sale so determined remains fixed and thereafter cannot be changed. The appellant after entering into contract for sale of the products enters into the contract for import of such products from overseas venders / suppliers. The invoices for such import are raised on the appellant by the overseas venders / suppliers in foreign currency, e.g., Thai Bhat or Japanese Yen. The invoices for import are, therefore, to be paid in the foreign currency purchased at the exchange rate available at the time of payment. Since the exchange rate of the currency involved, i.e., Thai Bhat and Japanese yen, incurs substantially during the relevant previous year, the import have become costlier while this transaction of sale was already entered into at a fixed price from the customers. This resulted in a loss to the appellant in the relevant previous year. It would be appreciated that the average of exchange rate of Thai Bhat during the six months period, i.e., October 2005 to March 2006 was 100 Thai Bhat = INR 110. Considering the said avera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Other operating income 37,422,103 Purchase price Less: Adjustment on account of exchange fluctuation (621,364,728-512,381,355) 814,114,911 108,983,273 705,131,638 Operating expense 59,665,854 Net Profit 81,249,434 OP/Sales 10.04 Accordingly, since the operating profit to sales ratio (PLI) of the appellant at 10.04 percent is higher than the operating profit margin of the comparable company selected by the TPO/DRP at 1.78 percent, the international transactions undertaken by the appellant of import of goods should be considered at being arms length price." 19. From the order of the DRP, we observe that the DRP considered the objection of the assessee related to rejection of Orbit Industries as a comparable and held that the assessee has not given any cogent reason for change in the new search process which was essential to have current year data and the filters applied earlier need to be applied now to maintain consistency in approach. The DRP further held that abnormal losses indicate that it was not a normal loss because financial analysis was triggered for FAR and this comparable fails at the very first step. In view of cogent reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgin of the assessee. Having noticed the difference, the revenue has to quantity the difference, if any, and then revenue authorities must decide if that difference constitutes 'materially affect' the price in open market. As per these provisions, if the answer of the above question is in the affirmative, then the identified difference has to be removed and the margin has to be adjusted for arriving at the credible comparable. It is a well-accepted accounting principle that net margins can be influenced by some of same factors which can influence price or gross margins. It is the expectations and requirements of the rules/provisions that any difference which is likely to materially affect the net profit margin (NPM) in the open market has to be eliminated. The revenue authorities and TPO are duty bound to know that the TNMM visualizes the undertaking of a thorough comparability analysis and elimination of the differences through the requisite adjustments. 22. In the case in hand, admittedly, the average exchange rate of Thai Bhat during October, 2005 to March 2006 was 100 Thai Bhat equivalent to INR 110 and after consideration of said average exchange rate, price of sale of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held in favour of the assessee that necessary adjustment pertaining to the huge and abnormal fluctuation in foreign currency is allowed then other grounds would reach to its justified conclusion. With this submission, the counsel did not submit detailed contentions on other ground nos. 2.1 to 2.6 and 2.9. In view of the directions to the Assessing Officer on ground nos. 2.7 and 2.8, inter alia the above submission of the assessee, we treat ground nos. 2.1 to 2.6 and 2.9 as not pressed and we dismiss the same because the adjustment allowed to the assessee hereinabove pertaining to the abnormal fluctuation in foreign currency would serve the ends of justice for entire grievances of the assessee. Hence, ground nos. 2.1 to 2.6 and 2.9 are dismissed. Ground no. 3 & 4 26. Apropos ground no. 3 and 4, the counsel for the assessee submitted that the Assessing Officer was not justified in restricting the depreciation on computer peripherals at 15 percent as against 60 percent claimed by the appellant. Placing reliance on the judgment of Hon'ble Jurisdictional High Court of Delhi in the case of Commissioner of Income Tax vs BSES Rajdhani Bench Ltd. in ITA No.1266/D/2010, the counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on the payer, i.e. any person responsible for paying to a non -resident, to deduct income tax at source at the rates in force from such payments excluding those incomes which are chargeable under the head "Salaries. Therefore, the entire tax is to be deducted at source which is payable on such payments made by the payee to the non -resident. Section 201 of the Act lays down the consequences of failure to deduct or pay. These consequences include not only the liability to pay the amount which such a person was required to deduct at source from the payments made to a non-resident but also penalties etc. Once it is found that the liability was that of the payer and the said payer has defaulted in deducting the tax at source, the Department is not remedy-less and therefore can take action against the payer under the provisions of Section 201 of the Income Tax Act and compute the amount accordingly. No doubt, if the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments, the non-resident is not absolved from payment of taxes thereupon. However, in such a case, the non-resident is liable to pay tax and the question o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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