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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 ..... ged by the se company to its international associated enterprise in respect of international transactions was at arm's length. Thus his holding to delete the addition on account of transfer pricing adjustment is not correct. 3. That under the fact and circumstances of the case, the CIT(A) has erred in holding that the assessee's adopted method of pricing was the most appropriate method. His holding was not correct in view of OECD's Transfer Pricing guidelines for Multinational enterprises and Tax Administrations. 4. That under the fact and circumstances of the case, the CIT(A) has erred in concluding that if the arm's length net profit margin was 12% and the assessee company earned a profit of 7.37% it is within acceptance limit. Actually, the tolerance limit of 5% is on "Price" and not on profit as per section 92C thus, the CIT(A) has erred in ordering deletion of transfer pricing adjustment of Rs. 49,84,545/- from the total income. 5. That under the fact and circumstances of the case, the CIT(A) has erred in holding the addition of Rs. 33,54,034/- as deemed dividend income of the assessee company not sustainable as per law. His decision is in apparent variance to the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd Samtex Fashion Ltd Wearology Ltd Results of these enterprises as obtained from cLine(tm)database are as below:- Co_Code Co_Name Rs in crores FX to SALES (Mar'03) PBITM (Mar'03) Net Sales (Mar'03) PBIT (Mar'03) 1 4621 Kitex Garments Ltd. 14.73 2.38 49% 16.16% 2 4274 Samtex Fashion Ltd 32.25 4.41 93% 13.67% 3 2604 Wearology Ltd 18.34 0.97 78% 5. 78% 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 transactions 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2% 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 period prescribed by the Board and should furnish the same within 30 days, to the Assessing Officer/CIT(A) from the date of their requisition by a duly served notice or within the extended period. iii) The assessee entering into an international transactions is also required to furnish an audit report in Form No.3CEB by a Chartered Accountant within the 'due dates'. As apparent from above, in case an assessee has computed its income from the internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the extent of orders placed by it for manufacturing of the goods. Therefore, I am of the view that there was no high manufacturing risk assumed by the appellant in view of the very fact that the purchases and manufacture process were undertaken on the basis of and as per the committed and guaranteed orders and requirements of Udare Ltd. (AE). There may be high manufacturing risk in the appellant's other manufacturing activities but so far as the risk in respect of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us Ld. AR has submitted declaration of the auditor on the stamp paper of Rs. 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 which was prepared on the basis of cost plus method and no adjustment has been made by the TPO. The ld. AR also submitted the orders of the TPO for the subsequent years which are placed on record. The ld. AR also submitted that the ALP has been determined by the auditors on well accepted principles applicable in the case of the assessee. He relied on the order of ld. CIT(A). On the other hand, Ld DR vehemently relied on the order Assessing Officer and he left the issue to the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sale of the flats was to settle the loan liability of the bank but instead of that the advance is used for the business purpose. On getting the verification it was revealed that both the flats were internally connected and was occupied by the common director all the three above stated companies. Accordingly the AO held that the transactions was framed to escaped from the applicability of section 2(22)(e) of the Act. So the advance received was treated as deemed dividend as per section 2(22)(e) of the A ..... 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