9911796707
TMI Blog2012 (11) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 8,39,245/-. This amount is certainly within the +/-5% range as provided under section 92CA(4) of the Income Tax Act. Not only that as submitted by the learned Counsel, the difference in price (operating profits/ sales) the A L P as per the TPO comes to ₹ 4,60,50,228/-. 105% of ALP (+5% range) on this is at ₹ 4,83,52,739/-. 95% of the ALP determined (-5% range) is at ₹ 4,37,47,717/-. Therefore, the sales to AE at ₹ 4,51,20,741/- is within the safe harbor range. The difference in price (operating profits/ Total costs) ie.the second table, the A L P as per the TPO comes to ₹ 61,9930,280/-. The operating cost considered by TPO in TP report was ₹ 59,09,72,622. 105% of this (+5% range) is at ₹ 65,09,26,794/-. 95% of this (-5% range) is at ₹ 58,89,33,766/-. Therefore, the operating cost at ₹ 59,09,72,622 is within the safe harbor range. Therefore, there is no need to make any addition under the provisions of the Transfer Pricing. Allocation of Expenses - Held that:- As rightly pointed out by the CIT (A) since no evidence was furnished for the argument that most of the expenditure pertains to Mr. Mihir Bhansali was book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee against the orders of the CIT (A)-15 Mumbai, dated 21.3.2011. 2. Assessee is in the business of diamond export and also engaged in Jeweler manufacturing. Apart from allocation of expenditure between diamond export business and jewellery manufacturing business the unit of which was eligible for deduction under section 10B, AO also made an addition of ₹ 1,20,84,042/-on the basis of the report of TPO towards International Transactions with AE by determining the arms length price. The learned CIT (A) restricted the adjustment to the transactions with AE thereby confirming only an amount of ₹ 8,39,245/- as against ₹ 1,20,84,882/- added by AO. The CIT (A) also reallocated some expenditure. Accordingly, the grounds are raised by Assessee and Revenue in these appeals. For the sake of record, the grounds are extracted as under: ITA No.4520/Mum/2011: 1. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) erred in reducing the adjustment made to the income of assessee from ₹ 1,20,84,042/- to ₹ 8,39,245/- on account of transaction carried out with associate concerns under section 92CA(3) of the IT Act . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may, in the computation of income AO made addition of ₹ 1,20,84,042/-. The TPO order was placed on record. 5. The revised international transaction of assessee are as under: S. No. Nature of Transaction Amount 1 Import of polished diamond- bond 70,60,082 2 Import of polished diamond manufacturing 1,45,46,358 3 Export of polished diamond manufacturing 4,51,20,741 4 Export of polished diamond-bond 6,48,59,891 5 Import of jewellery 3,49,76,753 6 Export of diamond studded jewellery 10,40,49,417 Total 27,06,13,242 The TPO after examination of the details accepted some transactions as at arms length price. So far as import and export of studded jewellery in the jewellery division and import and export of polished diamond- bond are con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ground Nos. 1 2 is mainly contesting the relief given by the CIT (A), on the reason that under the TNMM analysis, adjustment is required to be made on total transactions entered as the analysis is on entity level. At the outset it is fairly admitted that this issue was already crystallized in favour of assessee by the following decisions: a) DCIT v. Starlite (40 SOT 421 (Mum) b) DCIT vs. Ankit Diamonds (43 SOT 523 (Mum) c) Addl. CIT vs. Tej Dam (37 SOT 341 (Mum) d) M/s Genisys Integrating Systems (India) Pvt. Ltd (ITA No.1231/Bang/2010) e) ACIT vs. Wockhardt Ltd (6 Taxman.com 78 ITAT (Mum) f) Abhishek Auto Industries Ltd (2010 TII-54-ITAT (Del) g) DCIT vs. Startex Networks (India) Pvt. Ltd (2010 TII-13 ITAT (Del). Respectfully following, we hold that the CIT (A) order is in tune with the provisions of the Act as interpreted by the above orders of the ITAT. Since the arms length price has to be determined only with reference to the international transactions, whatever be the method followed or adopted for arriving at the ALP, the ALP can only be considered on the value of international transactions alone and not on the entire turnover of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the CIT (DR) cannot improve the order of the TPO wherein the operating cost was determined which cannot be varied. He submitted the working of safe harbor provisions as under: Working showing difference in price (OP/Sales) ( in Rupees) Sales to Associated Enterprises 4,51,20,741 Operating margin percentage as per P/L a/c 2.78% Operating margin (4,51,20,741 * 2.78%) 12,54,357 Operating margin determined by TPO 4.84% Operating margin as per TPO (4,51,20,741 * 4.84%) 21,83,844 Difference in operating margin (21,83,844-12,54,357) 9,29,487 Price as per TPO (4,51,20,741+9,29,487) 4,60,50,228 Difference in price (4,60,50,228-4,51,20,741) 9,29,487 Percentage difference (9,29,487*100/4,51,20,741) 2.06% Working showing difference in price (OP/TC) (in Rupees) Total cost 59,09,72,622 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olishing and manufacturing of jewellery. The unit manufacturing jewellery is eligible for deduction under section 10B. AO has listed out the total expenses and allocation to different units by assessee as under: Particulars Total Expense allocated to diamond unit Expenses allocated to jewellery unit Travelling expenses 2,34,19,542 1,83,94,685 50,14,858 Communication expenses 46,55,399 45,97,656 57,743 Conveyance and Vehicle Expenses 34,27,161 33,95,054 32,106 Donation 20,52,300 20,52,300 - Miscellaneous expenses 1,00,59,268 96,47,042 4,12,225 Audit fees 2,53,125 2,53,125 - Total 4,36,66,795 3,83,39,862 55,26,932 AO did not acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be examined in above context. 2.6 Travelling expenses out of the total expenditure incurred at ₹ 2.34 crores around ₹ 50,14,858/- has been allocated to jewellery unit which appears to be reasonable and so it is fe1t that there is no scope for any reallocation or the 76:24 formula based on sales ratio. 2.7. As regards communication, out of total expenditure of ₹ 46,55,399/- the appellant has allocated only ₹ 57,743/- on the jewellery unit. This is abnormally low and obviously does not reflect the actual ground realities. The appellant has taken a plea regarding Mr. Mihir Bhansali expenditure being borne by another related firm. The same is not accepted as it was not raised before AO nor backed by requisite evidences at the assessment level or at appellate level. As such it remains an assertion only. In such circumstances it will be fair to reject the appellant s entry into books and adopt a formulary approach based on sales. The reallocation done by AO of this expenses is therefore held to be in order. The same plea has been taken for conveyance and vehicle expenses. Here also out of total expenditure of ₹ 34,27,161/- the appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly referred to the travelling expenses which were not according to the ratio. The learned Counsel however, submitted that assessee has maintained separate books of account and expenditure was allocated on actual basis. Therefore, there is no need for allocating on the ratio of sales as was done by AO. In the items confirmed by the CIT (A), it was his submission that the expenditure allocated to a particular unit was on the basis of actual expenditure in the unit and therefore, there is no need for allocation of expenditure on a different ratio. 14. We have considered the rival submissions and examined the allocation of expenditure. As far as travelling expenditure is considered the CIT (A) affirmed the allocation of expenditure on actual basis with which we also agree. Therefore, Revenue ground on this issue cannot be accepted. With reference to the communication expenditure the expenses allocated to the diamond unit is almost in its entirety with a meager expenditure for jewellery unit which earned profit at 18.25% as against 2.66% in the diamond unit. As rightly pointed out by the CIT (A) since no evidence was furnished for the argument that most of the expenditure pertains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI bonds, there cannot be any expenditure except to examine whether the funds are own funds or borrowed funds and any interest expenditure was incurred. This aspect was never examined. It was also assessee s contention that 0.5% of the disallowance was worked on the total investment of ₹ 15.46 crores which itself was carried over from March 31, 2005 out of which ₹ 10.57 crores was invested in a subsidiary company, the income of which is not exempt as it is a US based company. On investment in joint venture company, there was no change in facts from earlier year. Therefore, if at all any disallowances is to be worked out on a reasonable basis as per the principles established by the Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs. DCIT (323 ITR 81) (Bom), it has to be on the amount of ₹ 3.75 crores invested in RBI relief bonds. During the course of the argument, the learned Counsel placed an order of the Coordinate Bench in the case of Pawan Kumar Parmeshwarlal vs. ACIT in ITA No.530/Mum/2009, dated 11th January, 2011 for the proposition that no disallowance under section 14A is required. However, the facts of that case was that assessee was an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
