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TMI Blog2016 (5) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that:- AO has treated the advance received by the assessee against a sale of properties as deemed dividend because assessee was holding the equity shares of the company, carrying voting rights more than 10%. However from the facts of the case we find that the money received by the assessee was representing the sale of the flats and therefore we conclude that the advance received by the assessee was not on returnable basis. The advance representing against the consideration for the sale of the flats is out of the purview of the provisions of section 2(22)(e) of the Act. In holding so we are putting our reliance in the decision of Hon'ble Bombay High Court in the case of CIT v. Nagindas M Kapadia ( 1988 (12) TMI 89 - BOMBAY High Court ) wherein Hon'ble court has held that only the payments and advances to the extent of accumulated profits could be treated as loans or advances within the meaning of Sec.2(22)(e) and this was what the Tribunal had done and, therefore, the Tribunal was right in holding that only ₹ 28,500 and ₹ 10,000 could be treated as deemed dividend in the assessment years 1968-69 and 1969-70. - ITA No.1352/Kol /2006 - - - Dated:- 19-4-2016 - Shri N. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The effective ground no. 1 to 4 are inter-connected and hence same is clubbed together for the sake of convenience is that Ld. CIT(A) erred in deleting the addition made by TPO on account of transfer pricing adjustment. 3. Facts in brief as culled out from the records are that the assessee in the present case is a private limited company and engaged in the business manufacturing of garments which are sold in national and international market. The assessee during the year had International transaction with its Associated Enterprises (for short AE) namely M/s Udare Limited London, UK. The assessee during the year made the export of goods worth of ₹ 9,19,87,333/- to its associated enterprises. The assessee submitted form 3CEB in relation to international transactions as required under section 92(E) of the Act. The assessee used the cost plus method for determining the Arm Length Price (for short ALP) with AE and arrived to the aforesaid figure of ₹ 9,19,87,333/-. During the proceedings u/s 92CA of the Act the TPO asked the assessee to provide detailed working of ALP including the documents and data which had been relied for using the cost plus method. But the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MEAN 11.87% In view o the above, PBIT3 margin or the Operating Profit (OP) margin in the assessee s case is adopted as 11.87 12% 10. Following transfer pricing adjustment is made to the assessee s profits with regard to the international transacti ons with the associated enterprise on the basis of arm s length operating profit margin (PBITM): REFERENCE REFERENCE X Net profit P L a/c 539,788 Y Interest costs (In relation to paid of 9192576-In relation to recd. 904794) P O a/c 8,287,782 Z PBIT as shown in P L a/c X+Y 8,827.570 Arm's length Operating Profit Margin on Sales (PBITM) 12.00% A Total Cost as claimed (excluding interest) E-Z 1,38,716,572 B Arm& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the ALP of International Transaction of assessee. Besides The TPO has also failed to consider the income of aforesaid three companies which are directly connected with the export e.g. Duty drawback. The assessee has these incomes which are directly connected with the export business but the TPO failed to consider the same while working out the ALP. The TPO has determined the ALP using the Transaction Net Margin Method (for short TNMM) @ 12% and has made adjustment of 5% as required for adjusting the value of export to M/s Udair, UK. After adjusting the variation of 5% from the ALP then it comes 7% and the assessee has declared ALP 7.37%. In view of this the ALP declared by the assessee of international transactions is clear and appropriate and do not require any adjustment. The ld. CIT(A) accordingly has deleted the addition by observing that the assessee was to fulfill certain conditions for working out the ALP in terms of Circular No. 12 of 2001 dated 23.8. 2001 as under:- i) The income from the international transactions should be computed having regard to arm s length price. ii) Assessee should keep and maintain prescribed information and document for the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omments are received, the final samples are prepared by the appellant company and sent to AE for ultimate/final approval before bulk purchase of materials and production have been made. Only on / after obtaining final approval and order from Udare Ltd mass procurement and production mere made by the appellant as per the requirements of its AE. Certain minimum risk may be involved at sampling designing stage as the same may be rejected or not approved by the AE as they are. At the stage of sampling and the procedures followed immediately thereafter, there is no bulk procurement of materials and mass production of goods which are liable to be rejected or discarded at later stage. Bulk purchase and production, processing and dyeing process are undertaken by the appellant as per the requirements of and as per approved samples by Udare Ltd. this was followed by asking and shipment on due time. Bills were raised on Udare Ltd and payments were also received on due time. The role of the appellant company is confined only to reparation of few samples, obtaining final approval of the buyer and thereafter procuring materials and producing goods in bulk as per the buyer s requirements and to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case. In view of above, I find the determination and the consequential addition of ₹ 49,84,543/- as transfer pricing adjustment is not strictly in conformity with the requirements of the provisions of section 922CC or Rule 10B 10C of the Act and accordingly the same is directed to be deleted. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 5. We have heard rival contentions and perused the materials available on record. Before us Ld. AR has submitted declaration of the auditor on the stamp paper of ₹ 10 duly notarized on dated 27.7.2012 stating that the assessee maintains its administrative office in Chennai and the relevant working of ALP could not be received from the Chennai office before passing the order u/s 92CA(3) of the Act. Accordingly the TPO observed that the auditors has not carried out an exercise to determined the ALP on the basis of cost plus method as claimed in form number 3CEB. The ld. AR submitted that necessary working for determining ALP was carried out in the year under consideration and in the subsequent assessment years on the basis of cost plus method. In the subsequent years the ALP was accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 2(22)(e) of the Act to the extent of accumulated profits and sought the clarification from the assessee. In response to the notice the assessee submitted that the money receipt does not represent the advance as per the provisions of section 22(2)(e) but the said money represents the advance against the transaction for this sale of flats to the above companies. However the AO disregarded the claim of the assessee by holding that the intention of the legislature behind the insertion of section 2(22)(e) of the Act is to bring the accumulated profit under the net of tax in the cases where companies passed on the benefit of undistributed profit to the share holders of the company without paying the taxes. Accordingly the advance received by the assessee falls under the provisions of section 2(22)(e) of the Act which gives the artificial definition of the dividend. In the instant case there was no the registered agreement for the sale of the properties and the same was not executed till the date of passing the order. Moreover the assessee has been showing the said flats as part of the balance sheet. It was also envisaged that the purpose for starting the process for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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