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TMI Blog2014 (4) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... ave confronted the assessee with it - It would have given a chance to the assessee to defend itself - By not affording an opportunity to the assessee, TPO had taken a unilateral decision and such decisions cannot be endorsed - TPO had not found any defect in TP Study carried out by the assessee - TPO had not discussed the reason for not accepting the operating margins of AIL, though the said company was in the same business - If the average operating margin shown by the assessee is compared with AIL, it is clear that same was within the +/-5% of the margins/transactions and was allowable as per the rules - while considering the basic data of AIL had ignored vital factors that have been highlighted by the FAA - FAA had correctly held that international transactions entered in to by the assessee were at arm's length and that no adjustment was required – Decided against Revenue. - ITA No.8485/Mum/2010 - - - Dated:- 29-11-2013 - I.P. Bansal And Rajendra , JJ. For the Appellant : O.P. Singh and Ajit Kumar Jain For the Respondent : K. Shivram ORDER:- PER : Rajendra Challenging the order dated 27.09.2010 of the CIT(A)-15, Mumbai Assessing Officer (AO) had filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 9 Reimbursement made (paid) 0.17 crs TNMM - TOTAL 8.28 crs 6.38 crs 10 Loan Received (Brought forward only) 13.05 crs CUP - He made a reference to the Transfer Pricing Officer (TPO) to determine arm's length price (ALP) of the international transaction. TPO issued a notice u/s. 92CA(2) of the Act to the assessee and directed it to make submissions to support the ALP computed by it.After considering the submissions of the assessee with regard to international transactions with the Associate Enterprise (AE), TPO held that assessee had purchased raw-material/components worth Rs.8.08 Crores from the assessee, that it had also purchased trading goods worth Rs.40 lacs, that it had adopted TNMM method, that eight companies were identified as comparable, that the operating profit (two sales) margin of the assessee was at 5.22% as against the comparables of 4.83% as claimed by the assessee. He re-worked the operating margins of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration in addition to the list of comparables selected by the assessee. He determined the arithmetic mean as under: SN Name of the Company Sales Total Cost Op.profit OP/TC % OP/Sales% Assessee* 29.72 28.17 1.55 5.50 5.09 Comparables: 1 Addison Co. Ltd. 115.87 109.65 6.22 5.67 5.37 2 Avery India Ltd. 74.15 68.59 5.56 8.11 7.50 3 Gansons Ltd. 39 37.05 1.95 5.26 5.00 4 L G Balakrishnan Bros. Ltd. 409.03 373.37 35.66 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 After receiving the recommendation of the TPO, AO issued a show cause notice to the assessee and asked him to explain as to why the adjustment/addition should not be made to its total income. After considering the submissions of the assessee, he made an addition/adjustment on account of ALP, amounting to Rs. 82,52,119/-of the international transaction, to the total income of the assessee. 2.2. Assessee preferred an appeal before the First Appellate Authority (FAA).After considering the TPO's order, assessment-order, the written submissions and oral arguments of the assessee, he held that the TPO had not disputed the amount of the international transactions and the TNMM method applied for justifying the arm's length nature of the transaction-in-question, that although both the assessee and the TPO had agreed to eight comparables yet the operating margins of the said comparables were different, that the assessee had carried out detailed Transfer Pricing Study justifying the ALP of the international transactions with its AEs by considering the various factors, particularly a comparative analysis of the functions performed by the assessee-company as against functions perf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the TPO and the operating margin of AIL was considered at1.65% it was evident that average operating margin of 5.33% of the said comparables was within the +/-5% of the margins/transactions of the assessee, that the international transactions, entered in to by the assessee, were at ALP and no TP adjustment was required. Finally, he deleted the addition, amounting to Rs.82.52 lakhs, made by the AO. 2.3. Before us, Departmental Representative(DR) submitted that FAA had wrongly rejected two comparables, the mean margin approved by the FAA was factually incorrect, that in earlier year also mean was arrived by considering the results of FEL and MIL. Authorised Representative(AR) submitted that the assessee had ascertained eight comparables with average operating margin of 4.83%,that assessee's operating margin was 5.22%,that because of that reason transactions were regarded as arm's length, that TPO had reworked the margins of the comparables by adding two more comparable i.e. FEL and MIL, that the TPO had determined net margin @ 8.02%,that TPO had not cited any reason/ground nor had adduced any evidence to prove that the method benchmarking adopted by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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