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TMI Blog2010 (5) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... hat similar volume discounts were allowed by him for the A.Ys. 2003-04 and 2004-05. Since the methodology for computation of volume discount for the A.Y. 2002-03 is the same as that was adopted for the A.Y. 2003-04 and which has already been verified by the TPO and accepted by the CIT(A), therefore, in our opinion, volume discount should be allowed to the assessee for the A.Y. 2002-03 on the basis of methodology accepted by the TPO and the CIT(A) in the subsequent year. With these observations, we restore this issue to the file of the AO for calculating the necessary volume discount and give appropriate relief to the assessee on the basis of the methodology adopted by him in the sub sequent years. The grounds raised by the assessee are partly allowed. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. - SHRI R.K. PANDA, AM SMT. ASHA VIJAYARAGHAVAN, JM For the Appellant: Mr. Rahul Mitra, Mr. Satish Mody, Ms. Aarti Amonkar For the Respondent: Mr. Ajitkumar Sinha O R D E R PER R.K. PANDA, AM: This appeal filed by the assessee is directed against the order dated 20th March, 2006 of the CIT(A)-VI, Mumbai relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered by me in earlier year order and I have adopted the different method of working out any adjustment if any required to be made in the closing stock. The operative portion of the above order is as under: Accordingly, it can be noticed that in a case where exclusive method is followed if the Cenvat element which is required to be added in the closing stock is same as the Cenvat credit yet to be availed shown on the asset side of the balance sheet, no addition on account of applicability of 145A could be made. However, if the Cenvat element to be included in the closing stock is more than the Cenvat balance available in the Cenvat credit account occurring on the asset side of the balance sheet, the balance is required to be added. Applying the above principle for the year also it may be seen that Cenvat element which is required to be added to the closing stock is ₹ 50,59,677/-. The balance available in the Cenvat credit account occurring on the asset side of the balance sheet is 23,95,132/-. I n view of above direction the addition to the closing stock would be ₹ 26,64,545/- as such the AO is directed to add ₹ 26,64,545/- to the closing stock inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accounting of CENVAT credit/ sales tax set off availed and utilised on materials consumed in payment of excise duty sales tax on finished goods accounted on the basis of materials consumed. a. Cenvat availed 44,491,887 b. Sales tax set off availed 273,879 5. Increase in sales of finished goods on inclusion of sales tax collected on sales. 11,215,304 6. Sales tax not included as part of turnover 11,215,304 Total 61,040,747 61,040,747 9. Further we find similar issue had come up before the Tribunal in assessee s own case in the immediately preceding assessment year and the Tribunal vide I.T.A. No. 6136/Mum/04 order dated 2nd April, 2008 for the A.Y. 2001-02 deleted the addition made by the Assessing Officer and enhanced by the CIT(A) by holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainable in law. We accordingly delete the addition. 10. Since the CIT(A) has decided the issue against the assessee by following his order for the preceding assessment year which has been set aside by the Tribunal, therefore, respectfully following the decision of the Tribunal in assessee s own case in the immediately preceding assessment year, we set aside the order of the CIT(A) on this issue and the above two grounds raised by the assessee are allowed. 11. Concise grounds of appeal No. 3 by the assessee reads as under: 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not treating the interest receipt of ₹ 76,747 as income from business and thereby reducing the same under clause (baa) of Explanation to section 80HHC of the Act. 12. After hearing both the sides, we find from the details furnished by the assessee in the Paper Book that the interest of ₹ 76,747 consists of overdue interest from customers amounting to ₹ 41,056, bank interest on deposits ₹ 31,176, interest on fixed deposit ₹ 979 and water deposits ₹ 3,610. After deducting interest of ₹ 10,074 towards wealth-tax, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Transfer Pricing Officer (TPO) u/s. 92CA(1). He noted that the TPO had passed the order u/s. 92CA(3) of the Act on 21st December, 2004 wherein the ALP of international transactions relating to export to AEs has been computed at ₹ 37,40,58,731 as against the transactions value of ₹ 34,32,69,351 declared by the assessee. The Assessing Officer accordingly made the addition of ₹ 3,07,89,380 to the total income of the assessee on account of adjustments of ALP of international transactions with AEs. 15. Before the CIT(A), it was submitted that the assessee company has entered into international transactions with the AEs and as per the Transfer Pricing Report prepared by it, the most appropriate method in determining the ALP is Transactional Net Margin Method (TNM Method). However, the TPO did not accept the TNM Method as appropriate method and adopted the Cost Plus Method (CPM). It was explained that use of CPM using the gross profit mark up earned by the assessee company from exports to unrelated third parties would not be an appropriate method for determination of ALP in respect of its international transactions since various functional and other differences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Export of goods 343,269,351 2. Reimbursements paid 3,581,066 3. Reimbursements received 2,198,676 He submitted that for the purpose of justifying the arm s length price for these international transactions the company applied the TNM method using operating profits/sales as the profit level indicator. 20. The learned counsel for the assessee reiterated the same submissions as made during the assessment and appellate proceedings. Referring to Paper Book pages 90, 105, 106 and 109, he submitted that there are substantial differences in the functional and risk profile of the activities undertaken by the assessee in respect of the exports made to the AEs and Non-AEs. He submitted that the assessee undertakes certain additional functions in respect of the exports made to the Non-AEs which primarily comprise marketing, distribution and selling activities. The functional differences on account of the costs incurred by the company in respect of the marketing, distribution and selling activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternal comparison is to be carried out in the instant case, then it should be carried out at the operating level i.e., using the net/operating margins. 23. He submitted that a net/operating level analysis using TNMM is appropriate in the instant case as the net margin are less affected by transactional differences. He submitted that under the TNMM, some level of functional diversity between the controlled and uncontrolled parties is acceptable as the differences in the functions performed between enterprises are often reflected in variations in operating expenses. Consequently, enterprises may have a wide range of gross profit margins but still earn broadly similar levels of net profits. 24. The learned counsel for the assessee drew the attention of the Bench to the following analysis of the net margins earned by the assessee on AE and Non-AE exports: Assessee s operating margin on AE Exports before volume discount 20% Assessee s operating margin on AE Exports after volume discount 26% Assessee s operating margin on Non-AE exports 20.16% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ** after allowing for adjustments on account of staff and travelling cost of dedicated marketing personnel . 27. The learned counsel for the assessee further submitted that the CIT(A) has allowed to the assessee the benefit of the -5% range. He submitted that in the assessee s own case for the same year the Tribunal has upheld the CIT(A) s action of allowing the -5% range to the assessee. He referred to the following working of the -5% range as carried out by the CIT(A): Revenue for AE exports a 343,269,351 DICOP for AE exports b 239,183,280 GP for AE exports 104,079,240 GP/DICOP c 43.51% Adjusted Arm s length GP/DICOP determined by CIT(A) d 52.77% Difference from Arm s length GP/DICOP e = c d 9.26% Difference from Arms length price f = e * b 22,137,777 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.Y. 2003-04 (Paper Book pages 272 to 217) he referred to internal page 13 (Paper Book page 284) and submitted that the TPO has allowed discount on sale price as per working given by the assessee at 11.44%. Referring to the order of the TPO for the A.Y. 2004- 05 (Paper Book pages 281 to 302) he referred to internal page 12 (Paper Book page 299) and submitted that the TPO has allowed discount on sale price at 12.25% as per the working given by the assessee. Therefore, the calculation given by the assessee for this year should be accepted and no addition should be made. 31. We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. There is no dispute to the fact that the assessee during the relevant assessment year has entered into the following international transactions with AEs: 1) Export of goods - 34,32,69,351 2) Reimbursement paid - 35,81,066 3) Reimbursement received - 21,98,67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) the nature and class of the international transaction; (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method; (d) the degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions; (f) the nature, extent and reliability of assumptions required to be made in application of a method. 35. We find the assessee is manufacturing Optical Brightening Agents (OBAs) which are being used in textile and paper industries and which are exported by the assessee to the AEs as well as Non-AEs. Therefore, we do not find any merit in the contention of the assessee that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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