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TMI Blog2014 (11) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrolled Price ('CUP') method and the CUP data available in the form of comparable arrangements with Agility network agents which are unrelated third parties; 2.2. rejecting Operating Profit ('OP') to Value Added Expenses ('VAE') ratio selected by the Appellant as the profit level indicator ('PLI'), and instead using OP to Total Cost (TC') ratio as the PLI; 2.3. rejecting economic analysis undertaken by the appellant by disregarding search of comparables undertaken by the appellant by considering OP/VAE as PLI; 2.4. not allowing the use of multiple year data as prescribed under Rule 1OB(4) of the Income Tax Rules, 1962 read with the OECD TP Guidelines, and determining the arm's length price on the basis of financial information of the comparables for the year ended March 31, 2008 identified pursuant to a fresh search for comparables performed during the assessment proceedings. The AO/ TPO/ DRP erred in rejecting the contemporaneous documentation maintained by the appellant as required under the Indian TP regulations; 2.5. computing the TP adjustment on freight receipts,(as against freight expense) merely to derive a larger adjustment. The TPO should have appreciated that the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP has relied upon the order passed by Ld. DRP in respect of A.Y 2007-08. Thus it was submitted by him that the issue is squarely covered by the aforementioned orders. For the sake of clarity Ld. AR further submitted that during the course of hearing of appeal before Tribunal in respect of assessment year 2007-08 it was the argument of Department that the matter should be restored back to the file of Ld. DRP as it was done by the Tribunal in respect of assessment 2006-07. However, on facts such arguments of Department was not accepted by the Tribunal and matter was decided in favour of the assessee after going through the earlier order. Ld. AR has submitted before us copy of both the orders and these copies were also given to Ld. DR. 3. Ld. DR did not dispute the contention of Ld. AR. However, he relied upon the orders passed by AO and Ld. DRP. 4. We have heard both parties on this issue and we find that this issue is covered in favour of the assessee by the earlier orders of the Tribunal. In para 5.3 of his order Ld. DRP has clearly observed that similar adjustment was considered by its predecessor Panel for A.Y 2007-08 and Panel had confirmed the adjustment in its directions d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the various submissions made by the assessee in the paper book as well as submissions before the ld. CIT(A), we find the assessee was regularly adopting the CUP method on its international transactions relating to freight expenses and receipts which has been examined by the TPO and accepted in A.Y. 2002-03 and 2003- 04. We find the TPO did not follow the earlier order of his predecessor and rejected the CUP method used by the assessee for the impugned assessment year. He also rejected the OP/VAE as the PLI and instead used OP/TC as the PLI on the ground that companies are operating in different geographical regions and agreements with third parties are entered into on a profit split method and not on the basis of rate. While doing so, he used the data of some private limited companies, the detailed information of which are not available in public domain and rejected the search undertaken by the assessee in the TP study. He further used the single year data for the purpose of TNMM analysis as against multiple year data applied by the assessee. It is the submission of the learned counsel for the assessee that the assessee had considered the CUP method as the most appropriate meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleted between the two dates separated by a year. It cannot be depreciation under tax or companies rules or as per policy of the company. In the case in hand, revenue authorities went wrong in disregarding the context and purpose for which the "net profit" was to be computed. Depreciation, which can have varied basis and is allowed at different rates is not such an expenditure which must be deducted in all situations. It has no direct connection or bearing on price, cost or profit margin of the international transactions. Principles emphasized in the case of Bangalore Clothing by Bombay High Court are attracted here. Object and purpose of the transfer pricing to compare like with the like, and to eliminate differences, if any, by suitable adjustment is to be seen. Therefore, there was justification on the part of the taxpayer in pleading that profits be taken without deduction of depreciation as depreciation was leading to large differences in margins for various reasons." 5.3 We find the OECD in the revised T.P. guidelines of 2010 has recognized the use of different measures of profit under the profit split method. The relevant para of the guideline reads as under:- "2.131 Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment u/s 92CA(3) of the I.T. Act, 1961, of freight related receipts and expenses amounting to Rs. 14,62,12,134/- made by the Transfer Pricing Officer & the Assessing Officer, as per the Arms Length Price by a sum of Rs. 27,54,34,623/-." 9.1 After hearing both the sides we find the above ground is identical to ground No. 1 by the Revenue in ITA No. 2000/M/10. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following the same ratio, this ground by the Revenue is dismissed. 4.1 So far as it relates to objection of the revenue that matter should be restored back to the file of AO as it was done for A.Y. 2006-07, Tribunal has rejected such contention with the following observations: 12.4 After going through the order of the tribunal quoted here in above we find that the tribunal has allowed the appeals of the appellant for the AYs 2004 -05 and 2005 - 06 and restored matter back to the files of the DRP for AY 2006 - 07, as the tribunal found that the order of the DRP for AY 2006 -07 was laconic. 12.5 As the facts in issue for the year under appeal are identical with facts of the AY 2004 -05 & 2005 -06, respectfully following the decisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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