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TMI Blog2012 (12) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... wn case for assessment year 2005-06. Therefore, the submissions made therein and the findings given in the said appeal will apply mutatis mutandis in this year also. 4. Learned Departmental Representative did not object to the submissions of the learned Counsel for the assessee. 5. After carefully considering the rival submissions of the parties and the orders passed by the TPO u/s 92CA(3) of the Act as well as directions given by the DRP, we find that in this year, the TPO has made adjustment on account of sale of polyester film products by its two A.Es i.e., M/s. Global Pet Films, Inc. (GPF) and Garware Polyester International Ltd. (GPIL) for sums aggregating ₹ 2,00,49,316. The assessee has bench marked its ALP in its transfer pricing study report following CUP method in the following manner:- S.no. Nature of Transaction Amount (Rs.) Method 1. Sales of Plain Film to GPF 12,96,15,000 CUP 2. Sale of Sun Control Film to GPIL 9,15,53,000 CUP 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.E and non-A.E. agents are carrying out their business activities. He also appreciated that the export price of the proceeds varies considerably from country to country and specifically in a developed market of U.S. and U.K. in comparison to Asian and African countries. He analysed the prices and also the nature of market which has been advertum discussed in detail in the foregoing paragraphs. However, after having come to the conclusion that the TPO s approach is not correct and he has not taken into account the vital factor of geographical, economical market differences, held that even the assessee s approach is also not acceptable as the geographical difference does exists between the Indian market on one hand and American European markets on the other hand. Thus, on the same logic, he rejected the assessee s approach for bench marking the ALP of its transactions with the A.E. This has been discussed in Para-3.32 as reproduced above. 18. After having rejected the approach of the TPO as well as the assessee, he admitted that there are no direct comparable un- control transactions to bench mark the ALP of the A.Es as their market prices prevailing in the concerned geogra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operating expenditure and operating profits of the A.Es for determining the ALP. A comparability analysis has to be carried out for determining the ALP. Provisions of section 92C provides computation of ALP and envisages that the ALP in relation to an international transaction shall be determined by any of the methods prescribed therein, being the most appropriate method having regard to the nature of transactions or class of transactions or class of associated persons or functions performed to such persons. For this purpose, six methods have been spelt out. Sub-section (2) of section 92C provides that the most appropriate method referred to in sub-section (1) shall be applied for determination of ALP. Thus, for computation on examining of ALP, one of the most appropriate methods has to be applied. Once the CUP method fails in this case, then it was required by the learned Commissioner (Appeals) to look into for other appropriate methods. Now, the question is what should be the most appropriate method. At the time of hearing, both the parties agreed that in case CUP method is failed, then TNMM can be adopted as most appropriate method, wherein the ALP is determined by comparin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been disallowed. This issue has come up for consideration in assessee s own case in ITA no.4444/Mum./2011, for assessment year 2005-06, order of even date 19th November 2012, wherein it has been held as under:- 20. Now, coming to the issue of adjustment on account of commission paid to the A.E., the learned Departmental Representative heavily relying upon the findings of the TPO submitted that once there is a similar nature of transaction for the same product which are being dealt with by the A.Es and non-A.E. foreign agents, then there cannot be two rates for payment of commission. Payment of commission @ 12.5% is definitely excessive and the TPO has rightly taken @ 5% based on rates of commission paid to non-A.E. foreign agents. On the other hand, the learned Counsel for the assessee had submitted that the agency arrangements with the A.Es were entirely different from that of non A.E. foreign agents and this analysis has been discussed in detail by the learned Commissioner (Appeals). He also pointed out the relevant obligations which were to be carried out by the A.Es which were not there in case of non-A.E. foreign agents. He, thus, strongly relied upon the findings and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s own case cited supra, we hold that the assessee s payment of commission @ 10% to it s A.E. would be at arm s length and accordingly, ground no.2, is partly allowed. 12. Ground no.3, relates to disallowance of ₹ 1,62,56,000, under section 14A of the Act. 13. The Assessing Officer noted that the assessee has earned dividend income of ₹ 10,92,638, which has been claimed as exempt under section 10(34) of the Act. However, the assessee has not disallowed any expenditure for earning such exempt income. The Assessing Officer invoked the provisions of Rule-8D and calculated the disallowance at ₹ 1,62,56,000, as per the working given at Page-9 of the order. 14. The DRP rejected the assessee s objection even though the assessee relied on the judgment of Hon'ble Jurisdictional High Court in Godrej Boyce Mfg. Co. Ltd. v/s DCIT, (2010), 328 ITR 081 (Bom.), and directed the Assessing Officer to re-calculate the disallowance in the following manner:- 2. The DRP has considered the latest decision of Hon'ble Jurisdictional High Court in the case of Godrej Boyce v/s DCIT, wherein even though Rule 8D is not held as applicable retrospectively, yet the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance for not considering the investment made in the subsidiary Garware Chemicals Ltd., while computing the disallowance. In this year also, no departure should be made on such an approach. We set aside the impugned order passed by the learned Commissioner (Appeals) and restore the matter back to the file of the Assessing Officer and direct him to examine the nature of investment and the expenditure attributable to such an investment and work out some reasonable basis without resorting to Rule-8D in any manner. The assessee will also provide necessary details in this regard to the Assessing Officer. Ground no.3, is thus treated as partly allowed for statistical purposes. 18. Ground no.4, relates to disallowance of ₹ 28,685, as unexplained receipts. 19. The Assessing Officer, from the reconciliation of ITS details, found that a sum of ₹ 28,685, has been received by the assessee from East West Freight Carriers Ltd., but the same has not been credited in the Profit Loss account. It has been observed by him that the assessee could not give any reason for not including the same in the total income and was unable to explain the transaction and, accordingly, the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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